{"id":32065,"date":"2024-11-12T18:35:00","date_gmt":"2024-11-12T13:05:00","guid":{"rendered":"https:\/\/www.nextias.com\/ca\/?p=32065"},"modified":"2024-11-12T18:35:02","modified_gmt":"2024-11-12T13:05:02","slug":"rbi-issues-new-framework-for-reclassification-of-fpi-to-fdi","status":"publish","type":"post","link":"https:\/\/www.nextias.com\/ca\/current-affairs\/12-11-2024\/rbi-issues-new-framework-for-reclassification-of-fpi-to-fdi","title":{"rendered":"RBI Issues New Framework for Reclassification of FPI to FDI"},"content":{"rendered":"\n<p><strong>Syllabus: GS3\/ Economy<\/strong><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Context<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The Reserve Bank of India issued an operational framework for reclassification of investment made by a foreign portfolio investor (FPI) to foreign direct investment (FDI) if the entity breaches the prescribed limit.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Background<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Under current regulations, FPIs can hold a maximum of <strong>10%<\/strong> of an Indian company\u2019s total paid-up equity capital.\u00a0<\/li>\n\n\n\n<li>Exceeding this cap previously left FPIs with two choices: <strong>divesting the surplus shares or reclassifying them as FDI.<\/strong><\/li>\n<\/ul>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-background\" style=\"background-color:#fff2cc\"><tbody><tr><td><strong>Foreign portfolio investment (FPI)<\/strong><br>&#8211; FPI consists of securities and other financial assets held by investors in another country.\u00a0<br>&#8211; It does <strong>not provide the investor with direct ownership of a company&#8217;s assets <\/strong>and is relatively liquid depending on the volatility of the market.<br>&#8211; <strong>FPI holdings can include<\/strong> stocks, American Depositary Receipts (ADRs), Global Depositary Receipts (GDRs), bonds, mutual funds, and Exchange-traded funds (ETFs).<br>&#8211; It is different from <strong>Foreign direct investment (FDI), <\/strong>which is an ownership stake in a foreign company or project made by an investor, company, or government from another country.<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>New Framework<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Mandatory Government Approval: <\/strong>FPIs must seek <strong>necessary approvals from the government <\/strong>when their equity holdings surpass the set 10% threshold, indicating a reclassification to FDI.<\/li>\n\n\n\n<li><strong>Timely Reclassification:<\/strong> The RBI mandates that the reclassification process should be completed<strong> within five trading days<\/strong> from the date of the transaction that breaches the limit.<\/li>\n\n\n\n<li><strong>Compliance Requirements<\/strong>;\n<ul class=\"wp-block-list\">\n<li>Investments must adhere to <strong>entry routes, sectoral caps, investment limits, pricing guidelines,<\/strong> and other FDI-specific conditions under the current rules.<\/li>\n\n\n\n<li>The RBI calls for comprehensive reporting as per the <strong>Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019.<\/strong><\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Revised SEBI Guidelines: <\/strong>SEBI requires FPIs that opt for reclassification to inform their custodian, who will temporarily freeze any further equity transactions in the affected company until the conversion process is finalized.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Significance of the New Framework<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Regulatory Compliance: <\/strong>It<strong> <\/strong>ensures that the process of transitioning from FPI to FDI is systematic, minimizing regulatory breaches.<\/li>\n\n\n\n<li><strong>Investment Oversight: <\/strong>It provides better oversight of foreign investments in Indian equity, maintaining the balance between capital inflows and national economic interests.<\/li>\n<\/ul>\n\n\n\n<p><strong>Source: <\/strong><a href=\"https:\/\/indianexpress.com\/article\/cities\/mumbai\/fpi-fdi-new-framework-rbi-9665039\/\" target=\"_blank\" rel=\"noopener\"><strong>IE<\/strong><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The Reserve Bank of India issued an operational framework for reclassification of investment made by a foreign portfolio investor (FPI) to foreign direct investment (FDI) if the entity breaches the prescribed limit.<\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[21],"tags":[],"class_list":["post-32065","post","type-post","status-publish","format-standard","hentry","category-current-affairs"],"acf":[],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/32065","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/comments?post=32065"}],"version-history":[{"count":1,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/32065\/revisions"}],"predecessor-version":[{"id":32066,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/32065\/revisions\/32066"}],"wp:attachment":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media?parent=32065"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/categories?post=32065"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/tags?post=32065"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}