The NR Eye: NRIs favour India as policies ease

February 12, 2013 - 5:11:29 am
by Moiz Mannan

Last month, the President of India, Pranab Mukherjee, spoke about how non-resident Indians (NRIs) find it emotionally and financially satisfying to invest in their home country.

Hard statistics bear him out not just in terms of NRIs but also foreign direct investment (FDI) and foreign institutional investors (FIIs). Despite sporadic ups and downs, the fundamental strength of the Indian economy continues to attract investors globally, and NRIs are advised to join the growth story’s script.

NRI deposits nearly doubled in the first eight months of 2012-13 to $11.24bn from $6.39bn a year ago, according to data released by the Reserve Bank of India (RBI). When it comes to FDI, India occupies the fourth position globally, behind the US, China and Britain. In spite of problems slowing growth in certain sectors and deficit challenges, India remains a destination for global investment. Foreign institutional investors (FII) put in net investment of around $24.5bn in equity and nearly $6.8bn in debt in the calendar year 2012.

Often in the face of opposition, the Government of India has adopted a liberal policy for FDI, including investments from NRIs. Most sectors are open to FDI under the automatic route. NRIs can make investment in India under various schedules of Foreign Exchange Management Regulations. Investment under FDI Scheme contained in Schedule 1 of these Regulations permits 100 percent NRI investments, under the automatic route, in the sectors of townships, housing, built-up infrastructure and construction-development projects (which include, but are not restricted to, housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, city and regional level infrastructure), without the conditions attached to FDI in such projects..

NRIs can also invest in share and convertible debentures of an Indian company under the FDI Scheme subject to certain terms and conditions. They can buy and sell shares and convertible debentures of an Indian company on both repatriation and non-repatriation basis under the Portfolio Investment Scheme (PIS) through a registered broker or a recognised stock exchange in India. The individual limit for an NRI under PIS is five percent of the paid up capital/paid up value of each series of convertible debentures, and the aggregate limit for all NRIs taken together is one percent of the paid up capital/paid up value of the company. This limit can be raised to 24 percent by the Indian company by its board passing a resolution, and a resolution being passed at a special annual general meeting. In addition, on non-repatriation basis and with the exception of some sectors, an NRI may buy, without any limit, shares and convertible debentures of an Indian company whether by public issue or private placement or rights issue.

Similar facilities are available to NRIs to buy government dated securities, treasury bills, units of domestic mutual funds, bonds issued by a public sector undertaking in India, non-convertible debentures of a company incorporated in India, bonds or units issued by Infrastructure Debt Funds, perpetual debt instruments and debt capital instruments issued by banks in India, and shares in public sector enterprises being divested by the government.

Also for risk-averse NRIs, the government has left banks free to determine interest rates for savings deposits and term deposits of maturity of one year and above under the Non-Resident External (NRE) accounts and savings deposits under Non-Resident Ordinary (NRO) accounts.

These measures have been welcomed by the diaspora and they deposited close to $67bn at the end of October 2012. The net private transfers from abroad during the first half of 2012-13 were close to $33 bn.

In November this year, net inflows into NRE accounts touched $696m. According to RBI data, the non-resident (ordinary) rupee accounts saw a net outflow of $307m in November, while foreign currency non-resident accounts, which allow NRIs to hold deposits in foreign currency, rose by $116m in the month.

An NRE account is one which can be opened only by the non-resident, and not through the holder of the power of attorney. Only NRIs can become joint account holders in the case of an NRE account. On the other hand, NRO accounts may be held jointly with residents and /or with NRIs. Along with this, the banks may also sanction rupee loans in India or foreign currency loans outside India to either the account holder or a third party to the extent of the balance in the NRE/ Foreign Currency Non Resident (Bank) account, subject to the margin requirements. To help NRIs maintain FCNR deposits in other currencies, since October 2011, FCNR (B) accounts have been permitted to be opened in any freely convertible currency. Moreover, NRIs are, since September 2011, also eligible to open NRE/FCNR accounts with a resident.