Finance Minister Jaswant Singh announced on Friday the government would ease overseas investment rules for companies, mutual funds and individuals in another step towards making the rupee fully convertible.
Under the new rules, a listed Indian company will be able to invest in a listed foreign company as long as that foreign company has a 10 per cent stake in any Indian listed company, Singh said.
"Permission (will be granted) to listed Indian companies to invest abroad in companies listed in recognised overseas stock exchanges and having at least a 10 per cent shareholding in a company listed on a recognised stock exchange in India," he said at the Pravasi Bharatiya Divas conference in New Delhi.
He also announced individuals would enjoy a similar right to invest in a listed foreign company with a 10 per cent holding in any Indian company.
Mutual funds now would be allowed to invest up to $1 billion in companies listed on overseas exchanges, up from $500 million earlier.
Singh said the government removed the existing limit of $20,000 remittance under the Employee Stock Option scheme.
"Such announcements are directed towards higher productivity and higher growth converting India's potential into a global dynamo," Singh told the conference attended by 2000 delegates of the Indian Diaspora.
Another significant measure was to permit the Indian companies to retain entire American Depository Receipts and Global Depository Receipts proceeds abroad for future foreign exchange requirement. At present the limit is $10,000.
The government has been emboldened to take these measures in the face of mounting foreign exchange reserves, now put at over $70 billion, Singh said.
He said the limits on trade-related loans and advances by export earners and foreign currency account holders would be discontinued. However, transactions would continue to be reportable to the Reserve Bank of India as at present.
Elaborating the measures, Finance Secretary S Narayanan later told reporters that corporates would now be permitted to acquire immovable property overseas for their business and staff residential purposes. This permission has been given only to those corporates which have set up branches and offices abroad.
Listed Indian companies have also been allowed to invest abroad in recognised overseas stock exchanges but would have to have at least 10 per cent shareholding in a company listed on a recognised stock exchange in India on January 1 of that particular year of investment.
Such investments should, however, not exceed 25 per cent of the Indian company's net worth as on the date of the last audited balance sheet, he said.
Though the mutual funds are permitted to invest abroad in listed companies up to $1 billion, they should have at least 10 per cent shareholding listed on a recognised stock exchange in India in the year of investment.
Apart from companies, the finance minister said individuals are also being permitted to invest abroad in companies which are listed on overseas stock exchanges and which have at least 10 per cent shareholding in a company listed on a recognised stock exchange in India on January 1 of the year of investment.
However, he said some investment limits are being fixed for individuals, which will be announced shortly.
These measures come at a time when the rupee is gaining in value against the US dollar in the face of India's burgeoning foreign exchange reserves and the exporters wanting the government to take steps to ensure that the rupee did not appreciate making them lose the export competitiveness.
Singh said these were only the beginning of the series of measures that he would be announcing from now on till the Budget to pump-prime the economy and encourage investments to push up growth.
Interestingly, Indians carved out a niche for themselves in Information Technology even before the government had not stepped in, Singh said.
He invited overseas Indians to take advantage of the favourable investment climate in India and participate in its development process.
Singh said a near 6 per cent growth in the first two quarters of the current financial year was despite the "daunting, challenging and adverse situation due to global slowdown and the worst ever drought in three decades in the country".
"We had a global downturn and despite that overall exports have grown by 19 per cent and non-oil imports have increased by 10 per cent. This is reassuring as it signifies the industrial recovery in the country," he said.
The finance minister said he expected the transformation of the vital infrastructure in the country in rail, road and air to take place in the next 12 to 18 months.
"This is not any self-aggrandisement," he said, adding, "This great quality of India to grow despite being made to bleed shows the dynamism and resilience the country had to progress in adverse situations".
India remained an engine and dynamo of growth despite the standoff with its neighbour and continuous challenges from terrorism.
Singh said he was worried over the impending scarcity of water in the country and that the government would boost investments including foreign investment for setting up water de-salination, purification and de-florination plants.
Such investments would be given 100 per cent depreciation, made tax free for 10 years besides zero customs, excise duties and local taxes.
Agencies
