RBI committee suggests amendments to FEMA rules

The Reserve Bank of India panel to review facilities for individuals under FEMA (Foreign Exchange Management Act) on Wednesday said the concept of ‘non-repatriation basis' or ‘non-repatriable funds' was outdated and all the relevant regulatory guidelines especially with reference to ‘investments' needed to be amended forthwith to indicate limited repatriability in accordance with the directions and up to the limits as may be specified by the RBI from time-to-time.

“Since non-residents have been given the freedom to remit $1 million annually, it makes little sense to maintain procedures under FEMA that continue to treat these two categories, (repatriable and non-repatriable funds) separately,” it said.

The RBI placed on its website the report of the committee to review the facilities for individuals under the Foreign Exchange Management Act (FEMA), 1999, under the chairmanship of K. J. Udeshi

“Over a period, the FEMA rules now contain contradictory provisions and there is also a need to make definitions uniform and consistent across FEMA.” The procedural ‘knots' in the system need to be untied to enable the present forex liberalisation to be effective and in the absence of untying of these knots, any further forex liberalisation will not be meaningful.

The limit on total holding in a single company not exceeding 5 per cent of the paid-up capital relates back to the days of the Escorts case and the imminent threat of a take-over by a non-resident. This issue has undergone a sea-change and ‘take-overs' are now taken care of under the ambit of SEBI regulations and using FEMA for this purpose is superfluous and an unnecessary cost and hassle to both the non-resident investor and the authorised dealer alike.

The same argument applies to the monitoring by RBI of the overall limit of 24 per cent shareholding by NRIs under PIS. All that needs monitoring is the total ‘foreign' holding comprising FIIs, NRIs/PIOs and others and the onus for this lies squarely on the company and not the Authorised Dealer or the Reserve Bank of India. In fact in those sectors where 100 per cent FDI is permissible there is no rationale for monitoring the portfolio investments of NRIs/PIOs, the panel said.

To enable hassle-free remittances by resident individual banks may be advised by the RBI not to insist on the submission of Form 15 CA/15 CB for any remittances under the Liberalised Remittance Scheme (LRS). ADs may obtain a suitable self-declaration from the resident for such remittances.

Resident individuals should be enabled to undertake any current account transaction (other than those included under Scheme I & II of GOI Notification No. GSR 381(E) dated May 3, 2000) up to $200,000 per financial year on the basis of a simple application form presently used for remittances under LRS without banks insisting on any documentary evidence or a chartered accountant's certificate in Form 15 CA/15CB.

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