Overseas Direct Investments - Clarification
IT has been observed that eligible Indian parties are using overseas direct investments (ODI) automatic route to set up certain structures facilitating trading in currencies, securities and commodities. It has come to the notice of the Reserve Bank that such structures having equity participation of Indian parties have also started offering financial products linked to Indian Rupee (e.g. non-deliverable trades involving foreign currency, rupee exchange rates, stock indices linked to Indian market, etc.).
RBI clarifies that any overseas entity having equity participation directly / indirectly shall not offer such products without the specific approval of the Reserve Bank of India given that currently Indian Rupee is not fully convertible and such products could have implications for the exchange rate management of the country.
Any incidence of such product facilitation would be treated as a contravention of the Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004 and would consequently attract action under the relevant provisions of FEMA, 1999.