Foreign investment ceiling relaxed for strategic sectors

New Delhi: A day after releasing a detailed Overseas Direct Investment Rules and Regulations 2022, the government on Tuesday clarified that an Indian corporate entity can make overseas investments beyond the prescribed limit in strategic sectors like energy and natural resources after obtaining necessary approvals.

On Monday, the government issued two separate gazette notifications in which overseas direct investment and overseas portfolio investment have been demarcated. In the earlier regulations, overseas portfolio investment was not clearly defined, while the other terms such as control, disinvestment, step down subsidiary and financial services activity have been defined.

Releasing the explanatory note, the finance ministry said that a non-financial sector entity can make a direct investment under the automatic route into a foreign entity engaged in financial services activity, except banking and insurance. This was not permitted earlier.

"An Indian entity not engaged in the insurance sector may make Overseas Direct Investment in general and health insurance where such insurance business is supporting the core activity undertaken overseas by such an Indian entity," it said.

Any disinvestment involving write-off beyond the specified limits required prior approval from the Reserve Bank. "The new regime brings such transactions under the automatic route," the finance ministry said.

The note further explained that a new concept of the strategic sector has been introduced under the new regime where the government would have the powers to permit overseas investment in excess of the limits provided in the overseas investment rules. "The strategic sector shall include energy, natural resources and such other sectors as may be decided by the Government from time to time."

Under the new regime, it also said that the acquisition of equity capital in a foreign entity on a deferred payment basis has been permitted in International Financial Services Centre (IFSC) under the automatic route.