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RBI lets, scopes forbid to invest abroad
Published on Wed, Nov 08, 2006 at 18:40, Updated on Wed, Nov 08, 2006 at 18:53 in Money » Tax section
Tags: Investment Abroad, RBI , Mumbai
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Mumbai: In its midterm monetary policy review, the Reserve Bank of India (RBI) has brought in three measures that directly affect individual investors. Here's a synopsis of the same.
Liberalised remittance scheme of $25,000 for resident individuals. Limit now raised to $50,000 per calendar year.
The RBI has announced that resident individuals would be allowed to remit up to $50,000 per financial year (increased from $25,000) for any current or capital account transactions or a combination of both. Which means resident individuals are free to buy property or shares or any other asset outside India without prior approval of the RBI. Individuals can also open, maintain and hold foreign currency accounts with a bank outside India without prior approval of the RBI.
Simultaneously, another change has been brought in. Earlier, residents could remit $5,000 per annum abroad as gifts and donations. Now, the $50,000 would be inclusive of this. In other words, $10,000 representing the allowable limit for gifts and donations respectively will no longer exist and there will be one single limit of $50,000 per annum, per person for gifts, donations and investments.
At the time of writing this, it is not clear if the $5,000 limit for gifts and donations individually has been maintained within the $50,000 limit or not.
In any case, the facility of being able to invest abroad is not new. RBI had already allowed residents to invest abroad vide A P (DIR Series) Circular No 64 dated February 4, 2004.
However, since then, no such product is available in the market. Actually, banks and fund houses initially did solicit deposits under the scheme. Several advertisements appeared offering foreign currency deposits/funds to be placed at overseas centers. However, a press release issued by the RBI went on to state that these advertisements did not contain appropriate disclosures to guide potential depositors. Marketing in India of schemes offered by foreign entities, not having operational presence in India also raised supervisory concerns.
It was therefore decided in public interest that no entity other than a licensed banking company could solicit foreign currency deposits from residents. Further, all banks, both Indian and foreign including those not having an operational presence in India had to seek prior approval from RBI for any foreign investment schemes. There was a long list of disclosures that such offerings had to provide.
This has scared off any such offers. Unless any streamlined procedures and specific guidelines for such schemes are laid down by the regulator, the $50,000 scheme would be all bark and no bite.
That being said, it must be noted that though a bank or a fund house is expected to take RBI permission, a resident individual’s right is in no way restricted from availing of the scheme. In other words, you as an investor can very well approach an Authorised Dealer (AD) and request remittance of the funds in an offshore deposit or a mutual fund or a stock of your choice. And the AD will have to comply.
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