Role Of RBI In Regulating Foreign Investments In India

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Anirudha Paul, B.A.LLB. (H), Amity University Kolkata

ABSTRACT

The Reserve Bank of India (RBI) plays a very essential role in the regulation of foreign direct investments in India which promise growing economic stability and helps foster a very conducive environment for the influx of foreign capital in the country. The RBI, as the country’s primary central banking institution, operates in the regulation of the foreign investment based on the mandatory guidelines provided by the Foreign Exchange Management Act (FEMA), 1999, the objective of which Act is to govern all forms of cross- border transactions and foreign investments from and in India. The RBI has made a joint effort with the Government of India in collaborating to formulate and execute policies related to foreign investments which look at the regulation of such investments in two different ways – one, being the “Automatic” route which does not mandate any prior approval whatsoever, and then the second route, the “Governmental” one which does require a very significant level of scrutiny and due diligence into giving a clearance to the relevant company from the relevant ministries. In either of these, the RBI must ensure a mandatory compliance with different sectoral caps, pricing guidelines, and various reporting requirements which are mandated for under FEMA, 19991. This involves a very comprehensive extension of the RBI’s role into overseeing External Commercial Borrowings (ECBs) of all types, along with various non-resident Indian (NRI) investments and Oversees Direct Investment (ODI) by Indian entities.2

FDI is considered as a very significant contributory factor in the recent economic growth that India has seen primarily in the form of infrastructure development, generation of employment, and extensive technological advancements. This regulation by the RBI involves checking up on FDI inflows based on proper defining of sector-specific limits, usage of various permissible instruments, and entry conditions. The RBI has also made it mandatory that such FDI is to be specifically reported through Foreign Investment Facilitation Portal (FIFP) and the Automatic Route Reporting System (ARRS) to ensure complete transparency.3

ROLE OF RBI IN REGULATING FOREIGN INVESTMENTS IN INDIA.pdf

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