The Indian government reportedly plans to allow foreign investors from specific countries to raise capital in Indian rupees to make investments in their respective countries.
The move is in line with this year’s budget proposal to simplify the country’s foreign direct investment (FDI) norms to promote the use of the domestic currency for overseas investments.
“The idea is to allow a resident foreign investor, say from Sri Lanka, to raise capital in India in rupees for the purpose of using it for any investments in Sri Lanka itself,” Moneycontrol reported, citing an unnamed government official.
The report, however, said such a facility may not be allowed for making investing in financial assets overseas.
“If somebody wants to borrow in India and make an investment and set up, say, a manufacturing unit somewhere else, that should be facilitated,” the official said.
“We will allow this only on a country-to-country basis and not across the board,” the official added.
The official, however, did not disclose names of countries whose investors could be allowed to tap the rupee route for investments.
Policy analysts, however, said some of the Middle East countries could be potentially on the list.
The report said this potential step is a part of the country’s overall aim to attract more foreign inflows by easing rules around FDI at a time when steeper interest rates in developed countries have led to investors preferring to invest abroad due to a higher opportunity cost.
India sees a drop in foreign investment
India has seen a fall in foreign investment inflows, which plunged to $26.5 billion in FY24 from $42 billion during FY23.
Foreign investors from countries currently facing a currency shortage, especially of dollars, as well as those with a trade surplus with India will be preferred when it comes to allowing them to raise capital in rupees for investments in that resident nation, the report said, citing the official.
This move, which is currently under discussion, will require changes to the Foreign Exchange Management Act (FEMA), the official said, adding that at present, only Indian investors are allowed to raise capital in rupees to invest abroad.
The latest proposal follows the government’s recent steps to streamline FDI and overseas investment regulations.
According to changes to the Foreign Exchange Management (non-debt instruments) Rules, 2019, notified on August 16, the rules for cross-border share swaps were eased, allowing Indian companies to issue or transfer equity instruments in exchange for foreign company equity instruments.
Other amendments included allowing the issuance or transfer of Indian company equity instruments in exchange for foreign company equity instruments to facilitate global expansion of local firms through mergers, acquisitions and other strategic initiatives.
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