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FDI policy, 2017 amended under FEMA, 1999

As we have notified earlier that the Department of Economic Affairs (DEA) under the Ministry of Finance has made changes in the Foreign Direct Investment (FDI) policy, 2017, which made prior approval of the government mandatory for foreign investments from countries that share border with India, to prevent opportunistic takeover of domestic firms amid COVID-19 pandemic under the Foreign Exchange Management Act (FEMA), 1999. Click Here for Official NotificationFinMin notifies changes in FDI policy under FEMA

  • But the above decision will take effect from the date of FEMA notification as a necessary amendment to Rule 6 of FEMA (non-debt instruments) Rules, 2019 (NDI Rules) was awaited.

Now, In exercise of the powers conferred by clauses (aa) and (ab) of sub-section (2) of section 46 of the Foreign Exchange Management Act, 1999, the Central Government amended the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 by which the above mentioned changes has come into effect.

Points to be noted:
In 2019, Reserve Bank of India (RBI) has introduced Foreign Exchange Management (Non-debt Instruments) Rules, 2019 by superseding the Foreign Exchange Management (Transfer of Issue of Security by a Person Resident outside India) Regulations, 2017 as well as the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2018.

  • These amendments have resulted in a power shift from the RBI to the Central Government to enhance the latter’s involvement in the foreign exchange transactions.
  • The countries which share land borders with India are China, Bangladesh, Pakistan, Bhutan, Nepal, Myanmar and Afghanistan.

About FEMA Act, 1999:
Passed in 1999, FEMA Act, 1999 replaced the Foreign Exchange Regulation Act (FERA), 1973 by which offences related to foreign exchange were categorized as civil offenses. Its purpose is to consolidate and amend the law relating to foreign exchange for facilitating external trade and payments in an orderly manner and also to develop foreign exchange market in India.