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Ambarish Mukherjee

Give reasoned comments, apex bank told

New Delhi , May 28

The Reserve Bank of India's stand regarding investment by NRIs and PIOs in partnership firms is holding up clearance of applications for fresh investments by the Foreign Investment Promotion Board (FIPB).

The central bank has been asked to furnished its "reasoned comments" to enable the Government to take a stand on such proposals.

The problem is that while the regulations issued by the RBI itself under Foreign Exchange Management Act (FEMA) provide for approval to such investments, the latter has not cleared applications required to be made under these regulations.

Enabling provisions

Consequently, the FIPB has been unable to clear these proposals. When queried by the FIPB, the RBI has conceded that the regulations do provide for such investments. But, however, it has argued that these are only enabling provisions and that since partnership firms/proprietary concerns do not have a well-defined regulatory framework, it is not in favour of permitting any NRI/PIO or foreign national of Indian origin, informed sources said.

Stipulations

According to FEMA, an NRI or PIO may invest in the capital of a firm or a proprietary concern in India subject to certain conditions, which include that the amount invested shall not be eligible for repatriation outside India. Further, another clause of the same regulations stipulates that a firm or a proprietary concern may make payment to or for the credit of a NRI or PIO the sum invested by such person in that concern or the income accruing to such person by way of profit on such investments.

Officials pointed out that this effectively means that NRIs and PIOs can invest in sole proprietorship or partnership firms with repatriation benefit with the approval of the Government or the RBI, as the case may be.

"The RBI stand is contrary to the notified policy of the RBI and so, it is being asked to clarify its stand clearly," sources said. The FIPB, it is learnt, has before it certain proposals for investment relating to the entertainment industry.

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