RBI Curbs Overseas Investment Limits

In the wake of a sharply declining rupee caused by an ever increasing current account deficit, the Reserve Bank of India (RBI) has, in order to curb outflows of foreign exchange, reduced the monetary limit applicable to 'overseas direct investments' by Indian parties under the automatic route. 

Previously, the total direct investment by an Indian party in overseas joint ventures (JV) or wholly owned subsidiaries (WOS) was limited to the extent of 400% of the Indian party's net worth.  This limit has now been reduced to 100% of the Indian party's net worth.  The reduced limit is also made applicable to investments by Indian companies in overseas unincorporated entities in the oil sector.  It has however been clarified that, as was previously the case, overseas investments in the oil sector by Navratna Public Sector Undertakings, ONGC Videsh Limited and Oil India Limited would not be subject to any investment limits under the automatic route.  The above changes were introduced by the RBI in a circular dated 14 August, 2013 (RBI Circular).

In a separate circular on the same date the RBI also reduced the existing limit under the Liberalised Remittance Scheme (LRS) for resident individuals from USD 200,000 per financial year to USD 75,000 per financial year.  It was also clarified that the LRS should no longer be used by resident individuals for acquiring immovable property outside India.

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