Report of RBI panel to review Facilities for Individuals under FEMA published

The Reserve Bank of India panel to review facilities for individuals under FEMA (Foreign Exchange Management Act) submitted report on 10 August 2011. 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.

In the report it mentioned that the concept of non-repatriation basis or non-repatriable funds was outdated. It also mentioned that 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.

However it is argued that since non-residents were given the freedom to remit $1 million annually, it made little sense to maintain procedures under FEMA that continue to treat these two categories, (repatriable and non-repatriable funds) separately.

The FEMA rules currently contain contradictory provisions and there is also a need to make definitions uniform and consistent across FEMA. The report suggested the procedural knots in the system need to be untied to enable the present forex liberalisation to be effective. It was pointed out that in the absence of untying of these knots, any further forex liberalisation would not be meaningful.

The issue of ‘take-overs' underwent changes in the past and now are 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.

Also the monitoring by RBI of the overall limit of 24 per cent shareholding by NRIs under PIS was stated useless.  According to the report all that required monitoring was the total foreign holding comprising FIIs, NRIs/PIOs and the responsibility for the same lay on the company and not the Authorised Dealer or the Reserve Bank of India. It was also pointed out that in those sectors where 100 per cent FDI is permissible there is no rationale for monitoring the portfolio investments of NRIs/PIOs.

To enable hassle-free remittances by resident individual banks were advised not to insist on the submission of Form 15 CA/15 CB for any remittances under the Liberalised Remittance Scheme (LRS).

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 $200000 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.