The document outlines the major amendments to the Foreign Exchange Management Act, specifically regarding overseas direct investment (ODI) and overseas portfolio investment (OPI) regulations. Key changes include updated definitions for ODI and OPI, adjustments to disinvestment conditions, and new pricing guidelines to enhance clarity and ease of doing business. The proposed regulations also impose requirements for obtaining a No Objection Certificate in certain circumstances and allow for restructuring of the balance sheets of foreign entities with Indian investments.

1. ODI DRAFT
REGULATIONS

2. LEGENDS
FC Financial Commitment
FDI Foreign Direct Investment
FEM Foreign Exchange Management
FEMA Foreign Exchange Management Act, 1999
LLC Limited Liability Company
LLP Limited Liability Partnership
NOC No Objection Certificate
NRO Non-resident Ordinary Account
ODI Overseas Direct Investment
OI Overseas Investment
OPI Overseas Portfolio Investment
RBI Reserve Bank of India
SDS Step Down Subsidiary

3. PRESENTATION SCHEMA
INTRODUCTION
MAJOR
AMENDMENTS
TO DEFINITION
AMENDMENT TO
CONDITION ON
MAKING ODI
PRICING
GUIDELINES
RESTRUCTURING
OF BALANCE
SHEET
OTHER
AMENDMENTS

4. INTRODUCTION

5. INTRODUCTION
Objective
With a view to further liberalize
and to promote ease of doing business,
decided to rationalize the existing
overseas investment.
Draft Regulations
Foreign Exchange Management (Non-
Instruments - Overseas Investment)
Foreign Exchange Management
Investment) Regulations, 2021.

6. MAJOR
AMENDMENTS
TO DEFINITIONS

7. DEFINITION
OF ODI
The definition has been amended to include
two major aspects:
(i) Investment in 10% or more of the paid up
equity capital of a listed entity; and
(ii) where person acquires control either
directly or indirectly.
The definition also clarifies that once an
investment has qualified as ODI, it shall remain
as an ODI even if the percentage requirement
(as in the case investment in listed company)
falls below the required 10% or if control is
lost.

8. DEFINITION
OF OPI
OPI has now been defined to provide clarity.
Investment upto 10% in listed foreign securities
which are Listed on a recognized stock exchange
outside India would come under the ambit of
OPI. It also includes units of Exchange traded
Funds that are listed.
When this definition is read in conjunction with
the ODI definition, it is clear that investment
would qualify as OPI only upto an aggregate
investment of 10% in the same entity. Once the
10% limit is crossed, they would automatically
qualify as ODI and not OPIs.

9. DEFINITION OF CONTROL
“Control” has been defined to include the following:
(i) right to appoint majority directors
(ii) control management
(iii) control policy decisions
by person or persons, individually or in concert, directly or indirectly.
The definition further goes on to include control by virtue of shareholding, management rights,
shareholders rights, voting rights that entitle > 10% voting rights.

10. DEFINITION
OF FOREIGN
ENTITY
The definition of Foreign Entity is severely restricted
to include only 'incorporated and registered' entities.
This condition, would restrict ODI in entities which
are not incorporated like LLC’s / LLP’s which are
formed and registered but not incorporated.
The definition under the draft regulations once
notified, would also be applicable to the existing
investments but the transition provision is provided.
No fresh investments would be permitted after a
period of 6 months from the date of notification
unless the structure of the Foreign Entity is changed
in compliance with the new definition.

11. DEFINITION OF
SDS AND
DISINVESTMENT
• “SDS” means any step down entity in which
the Foreign Entity has investment (in case
of unlisted entity) and in case of listed
entity, the investment shall be more than
10%.
SDS
• "Disinvestment" means transfer by way of
sale of right, title or possession of equity
capital acquired under these rules and
includes liquidation thereof.
Disinvestment

12. AMENDMENTS
TO
INVESTMENT
CONDITIONS
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13. BONAFIED BUSINESS ACTIVITY
Extant Regulation 6(2)(ii) stipulated a
condition of overseas entity to be
engaged in ‘”Bonafide Business Activity”.
However, Bonafide Business Activity was
not defined.
Under the draft Rule 4 of FEM (Nondebt
Instrument - OI) Rules, 2021, an
explanation has been added to define
“Bonafide Business Activity”. It shall mean
any business activity legally permissible
both in India and host jurisdiction.”

14. REQUIREMENT OF NOC
Where a Person Resident in India making any Financial Commitment or undertaking disinvestment of
such financial commitment has an account appearing as a Special Mention Account- category 1/
Special Mention Account- category 2 /Non-Performing Asset (NPA)/wilful defaulter, or is under
investigation by investigative agencies in India, then an NOC shall be obtained from the lender
bank(s)/regulatory body/investigative agency concerned before making Financial Commitment or
undertaking Disinvestment of such Financial Commitment.

15. PRICING GUIDELINE
In case where no specific pricing guideline under the regulations, the
following general pricing guidelines would be applicable:
In case of listed foreign securities, the price worked out in accordance
with the concerned stock exchanges of the host country;
In case of OI other than listed foreign securities, the price should be
within 5 percent range of the fair value arrived on an arm’s length basis
as per any internationally accepted pricing methodology for valuation

16. RESTRUCTURING
OF BALANCE
SHEET
An Indian Entity which has made ODI in a Foreign
Entity, may permit restructuring of the balance sheet
by such Foreign Entity, which has been incurring losses
for the previous two years as evidenced by its last
audited balance sheet.
The maximum limit of write off of upto 25% has been
reduced to 10% with an additional cap of USD 10
million.
Registered Valuer’s report is also now required for
restructuring the balance sheet.

17. AMENDMENTS
MADE IN THE
CONDITIONS
FOR ODI BY AN
INDIAN ENTITY
(SCHEDULE – I)
Financial Service Activities
• The condition pertaining to complying with the
prudential norms relating to capital adequacy has been
done away with.
Overseas Technology Fund (OTF)
• Listed Indian Entity having Net Worth of Rs. 500 crores
or more, may make ODI in an OTF for the purpose of
investing in overseas technology startups with the only
condition that it has made profits in three preceding
financial years and has not made investments from
borrowed funds.
Limit of Financial Commitment
• Under the proposed draft regulations, the limit to
calculate 400% of the Net Worth shall not include
capitalization of the retained earnings by the Indian
entity.

18. CONDITIONS
FOR OPI BY AN
INDIAN ENTITY
(SCHEDULE – II)
Only the following Indian Entities are
permitted to make an OPI:
• Listed Indian company upto 50% of its Net Worth.
• Indian software exporter – only upto 25% of its export
value.

19. AMENDMENTS
MADE IN THE
CONDITIONS
FOR ODI BY
RESIDENT
INDIVIDUAL
(SCHEDULE –
III)
• Proviso to para 1 in Schedule III has been inserted
clearly specifying that LRS limits shall not apply to
any investment made from RFC account. However,
other conditions shall apply
Investment from RFC account:
• OPI investments have specifically been included
and allowed to be made by Individuals.
OPI Investment:
• In case of ODI investment, it is mandatory to
acquire control to be classified as ODI.
ODI investment requirement:

20. OTHER
AMENDMENTS

21. ROUND TRIPPING
The draft regulations permits person resident in India to
invest in a foreign entity which has invested into India either
before the Investment or after the Investment except in
cases where it is for tax evasion or tax avoidance.
In other words, Round tripping is permitted if the same is not
for tax avoidance.

22. OTHER AMENDMENTS
Reporting in case of outbound
investments is now divided into
Form FC and Form OPI for
Financial Commitment and for
Overseas Portfolio Investments
as the name suggests.
Additionally, a software exporter
has now been allowed to receive
foreign security up to 25% of the
value of exports made to a
foreign software company
irrespective of whether such
company is listed or not.

23. Thank You!
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