New Delhi: Aiming to attract overseas funds, government Thursday decided that non-repatriable investments by NRIs, OCIs and PIOs will be treated as domestic investments and will not be subject to foreign direct investment caps.
The Union Cabinet, chaired by Prime Minister Narendra Modi, had approved amendments, including changes in definition of NRIs, to be incorporated in the FDI policy.
Investments by NRIs under under Schedule 4 of FEMA regulations will be deemed to be domestic investment at par with the investment made by residents, an official statement said.
The Cabinet's decision is expected to result in increased investments across sectors and greater inflow of foreign exchange remittance leading to economic growth of the country, it added.
The government had earlier raised the FDI limit in sectors such as defence, insurance, real estate, railways and medical devices.
During his foreign vists, Prime Minister Narendra Modi has been reaching out to NRIs to invest in India.
Non-resident Indians too have been demanding that their investment be considered as domestic investment.
A committee, set up to look into the possibility of treating non-repatriable NRI funds as domestic investment, had earlier said that NRIs might prefer investing through corporate entities.
Facility of investment on non-repatriable basis was introduced primarily with the intention of providing NRIs an investment option for utilisation of their domestic resources, which were not freely repatriable.
It was intended to provide NRIs an incentive to bring funds into India without repatriation rights, at a time when foreign exchange reserves were limited and capital inflows were modest, the statement said.
The provision should continue to incentivise investments by NRIs, including OCIs and PIOs, resulting in increased investments in the country.
Since the investment made under Schedule 4 are on non-repatriable basis, it needs to be clearly provided that such investments, for the purposes of FDI policy, are domestic investments, it added.
"This will enable investments by NRIs, OCI cardholders and PIO cardholders under Schedule 4 on non-repatriation basis, across sectors without being subjected to any of the conditions associated to foreign investment," it said.
During the April-February period of the previous fiscal, FDI rose by 39 percent to USD 28.81 billion as against USD 20.76 billion in the same period last fiscal.
The Cabinet has given its "approval to review of FDI policy on investments by Non-Resident Indians (NRIs), Persons of Indian Origin (PIOs) and Overseas Citizens of India (OCIs)," the statement said.
It said that investment by NRIs under under Schedule 4 of FEMA Regulations will be deemed to be domestic investment at par with the investment made by residents.
This "meant to provide clarity in the FDI policy as such investment is not included in the category of foreign investment," it added.
Earlier under Schedule 4 of FEMA, NRI investments are made on non-repatriation basis though it has not been provided that these are domestic investments.
As per the FDI policy, definition of NRIs includes PIOs, and OCIs were not specifically mentioned.
"The decision that NRI includes OCI cardholders as well as PIO cardholders is meant to align the FDI policy with the stated policy of the Government to provide PIOs and OCIs parity with NRIs in respect of economic, financial and educational fields," it said.
The statement said that in the last one year, the government has taken a number of reform measures.
"India has a large available skilled and unskilled workforce. However, unless the manufacturing sector grows we will not be able to take advantage of this demographic dividend," it said.
After the launch of 'Make in India' , the government embarked upon a number of initiatives on ease of doing business.
"Measures taken on this front have shown highly encouraging results and foreign investment on a series of manufacturing sectors has shown increased growth from October onwards," it said.
The measures announced by the government, it said, will have positive impact on the economy.
"Though gestation period of any reform ranges from 12 to 18 months, the results of these reforms are visible even in a short period of time," it added.
During October-March, 2015, FDI inflow recorded a growth of 38 percent from USD 18.13 billion to USD 24.95 billion.
FDI equity inflows also increased from USD 11.7 billion to USD 16.24 billion, recording an increase of 39 percent.
"Cardinal principle of the FDI policy of the country has been to keep maximum of the sectors under automatic rule and regulating only those sectors which are strategic in nature or have security concerns," it said.
It also said that the last year saw significant jump in the FDI through approval route.
"This is a result of fast pace of approvals being accorded by the government and confidence of investors in the foreign investment climate of the country," it said.