The Finance Ministry has amended FEMA rules to ease policy confusion on non-debt instruments. Specifically, Section 6 has been amended, which empowers the Centre to frame rules for foreign direct investment (FDI) and foreign portfolio investors (FPI) policy.
Finance Ministry sources say control on capital flows as equity will be exercised by the government in consultation with the Reserve Bank. Sources further add that a list of transactions classifying debt and non-debt transactions will be notified soon.
The government has been given powers under FEMA to regulate non-debt capital transactions, while RBI will regulate capital transactions with respect to debt instruments. The definition of 'debt instruments' will be decided soon.
Meanwhile, Section 6 (3) of FEMA Act, which gave RBI power to regulate and restrict capital transactions, has been deleted.
According to government sources, earlier provisions led to confusion on capital transactions. With these changes, foreign investment proposals will be cleared faster.
Sources add it was difficult for RBI to take decision on clearing non-debt investment proposals.
The government will also decide on FEMA norms on hybrid instruments like FCCBs, Put & Call Options.
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