• FDI has been a crucial non-debt financial force behind the economic upsurge in India. Special investment vantages like cheap cost wages and tax exemptions on the amount being invested attract foreign companies to invest in India. FDI in India is done across a wide range of industries and its relentless ingress reflects the tremendous scope, faith and trust that foreign investors have in the Indian economy.
  • According to Department of Industrial Policy and Promotion (DIPP), the total FDI investments in India during 2017-18 were approximately US$ 44.86 billion, reflecting positively on government’s effort to improve ease of doing business and relaxation in FDI norms.
  • Data for 2017-18 indicates that the services sector attracted the highest FDI equity inflow of US$ 6.71 billion, followed by telecommunication -US$ 6.21 billion and computer software and hardware – US$ 6.15 billion.
  • The key legislation that directly or indirectly regulates and governs acquisitions and investments by foreign nationals is the FEMA (along with rules and regulations thereunder, in particular, the (Transfer or Issue of Security by a Person Resident outside India (TISPRO) 2017), as well as other notifications, circulars and directions related to foreign investments issued by the RBI from time to time.
  • Until 2010, the regulatory framework for foreign investment in India consisted of the FEMA, the regulations framed thereunder, the press notes, press releases issued by the DIPP and the notifications, circulars and directions issued by the RBI. After April 2010, the press notes and press releases issued by the DIPP were consolidated into the FDI Policy, which is updated and modified annually.
  • In addition to complying with the Indian foreign exchange laws and the rules, regulations and policies of India, foreign investors are also required to comply with the relevant sector-specific and state- specific (local laws) legislation applicable to a particular industry or sector.
  • Subject to satisfying the assets and turnover thresholds  prescribed under the Competition Act 2002 (Competition Act), the regulations and notifications thereunder, and the non-applicability of any of the exemptions available to the transacting parties, investments that involve an acquisition of shares, assets, voting rights or control, or a merger or amalgamation (together referred to as ‘combinations’) must be notified to the Competition Commission of India (CCI), which is empowered to prohibit or modify transactions that are likely to cause an appreciable adverse effect on competition (AAEC) in India.
  • Moreover, there are specific regulators that review mergers or acquisitions of companies within certain industries and sectors (e.g., the Insurance Regulatory Development Authority for insurance companies and the Telecom Regulatory Authority of India for telecom companies).
  • Previously, the Foreign Investment Promotion Board (FIPB) was the governmental body that offered a single window clearance for proposals on FDI in India that are not allowed access through the automatic route.
  • However, the government of India has abolished the FIPB, and mandated that where FDI is only permitted through the approval route, the sector-specific competent authorities (such as the Ministry of Information and Broadcasting, Ministry of Mines, etc.) have to be approached for approval.
  • In case of confusions regarding which competent authority is to be approached, the DIPP is mandated to identify the competent authority concerned and to this effect, the DIPP has established a Foreign Investment Facilitation Portal (FIFP) for the same.

The approval of the competent authority is required if the investment is made under the approval route and either of the parties, being the foreign collaborator or foreign investor, or the Indian company, can secure approval from the competent authority. Further, where an investment involves an acquisition of shares, assets, voting rights or control, the acquirer will be responsible for notifying the combination to the CCI. In the case of a merger or amalgamation, all the parties are jointly responsible for notifying the combination to the CCI.

DIPP

  • Within two days of submission of the online application, the DIPP is required to e-transfer the application to the competent authority concerned and also circulate the application to the RBI, the Ministry of Home Affairs, government of India (MHA) (in case the proposed foreign investment is in a sector requiring security clearance), Ministry of External Affairs, government of India.
  • The concerned ministries are required to upload their queries regarding the application on the FIFP within four weeks of online receipt of the application. In case security clearance is required from the MHA, the aforesaid timeline can be extended to six weeks (Stage 1). Within one week of completion of Stage 1, the competent authority may pose queries to the applicant. The applicant must respond to the queries of the competent authority within one week of the date of receipt of queries (Stage 2).
  • Within two weeks from the completion of Stage 2, the competent authority must process the application and convey its decision to the applicant.
  • The timelines may vary in the event that the application is subject to receipt of security clearance from the MHA or because of other administrative reasons. The status of the application can be tracked on the FIFP website.

Competition Commission of India

  • As far as the CCI is concerned, the overall prescribed statutory time period to review the combination and pass a final order is 210 calendar days from the date ofthe notification, and in limited situations, where remedies may be warranted, 270 days to approve or disapprove the transaction.
  • The Combination Regulations further provide that the CCI shall endeavour to pass its fi order within 180 calendar days of fi the notification.
  • Additionally, the CCI must form a prima facie opinion on the likelihood of the combination resulting in an AAEC within 30 working days of fithe notification.
  • This is subject to ‘clock-stops’ on account of requests from the CCI for additional information, extensions sought by parties, etc.
  • The extent of overlaps relating to the combination, the sensitivity of the government towards the sector to which the combination relates and the existence or likelihood of the combination resulting in AAEC, are some of the factors that may determine the timeline for clearance. In a majority of cases, the CCI has approved transactions within the 30 working day timeline (excluding clock stops).

There are four broad categories of exemptions under the merger control regime that the parties to the combination can analyse and benefit from.

  • Statutory exemption: The requirement of mandatory notification to the CCI do not apply to any financing, acquisition or subscription of shares undertaken by foreign institutional investors, or venture capital funds registered with the SEBI, public financial institutions and banks pursuant to a covenant of an investment agreement or a loan agreement. However, these entities are required to provide details of the acquisition, including control, circumstances for exercising such control and consequences of default arising out of such loan agreements or investment agreements to the CCI within seven days of the date of the acquisition.
  • Categories of transactions ‘normally’ exempt from mandatory notification: Regulation 4 read with Schedule 1 of the Combination Regulations treats certain categories of transactions as being ordinarily not likely to cause an appreciable adverse effect on competition in India, and hence provides that a pre-notification need not normally benefitted for such transaction.
  • Target-based exemption (de minimis exemption): Further to the thresholds notification, any transaction where the enterprises (i.e., the enterprises whose shares, voting rights, assets or control are being acquired or are being merged or amalgamated) either has assets not exceeding 3,500 million rupees in India or has a turn- over not exceeding 10,000 million rupees in India, are currently exempt from the mandatory pre-notification requirement.
  • Exemptions for specific sectors: The central government has issued notifications exempted certain banking companies from the notification requirement to the CCI for a period of five years (for example, vide notifications dated 8 January 2013 and 10 August 2017). Recently, the central government also exempted certain Central Public Sector Enterprises operating in the Oil and Gas sector from the CCI notification requirement for a period of five years from 22 November 2017.
Sector 2017-18 (April’17 – March’18) (In US$ Millions)
SERVICES SECTOR ** 6,709
COMPUTER SOFTWARE & HARDWARE 6,153
TELECOMMUNICATIONS 6,212
CONSTRUCTION DEVELOPMENT: TOWNSHIPS, HOUSING, BUILT-UP INFRASTRUCTURE 540
AUTOMOBILE INDUSTRY 2,090
TRADING 4,348
DRUGS & PHARMACEUTICALS 1,010
CHEMICALS (OTHER THAN FERTILIZERS) 1,308
POWER 1,621
CONSTRUCTION (INFRASTRUCTURE) ACTIVITIES 2,730

Note: (i)** Services sector includes Financial, Banking, Insurance, Non-Financial / Business, Outsourcing, R&D, Courier, Tech. Testing and Analysis (ii) FDI Sectoral data has been re validated / reconciled in line with the Reserve Bank of India, which reflects minor changes in the FDI figures (increase/decrease) as compared to the earlier published sectoral data.

Country 2017-18 (April’17 –March’18 ) (In US$ Millions)
Mauritius 15,941
Singapore 12,180
Netherlands 2,800
U.S.A 2095
Japan 1,610
Germany 1,146
U.A.E 1,050
U. K. 847
France 511
Cyprus 417

 

  • ‘Indirect Foreign Investment’ is downstream investment received by an Indian entity from:
    • Another Indian entity (IE) which has received foreign investment and which is not owned and not controlled by resident Indian citizens or is owned or controlled by persons resident outside India; or
    • An investment vehicle whose sponsor or manager or investment manager is not owned and not controlled by resident Indian citizens or is owned or controlled by persons resident outside India
  • ‘Strategic downstream investment’ means downstream investment by banking companies incorporated in India in their subsidiaries, joint ventures and associates
  • Government approval is required for such companies for undertaking activities which are under Government route. As and when such a company commences business(s) or makes downstream investment, it is mandatory for them to comply with the relevant sectoral conditions on entry route, conditionalities and caps

Conditions for downstream investment that is treated as Indirect Foreign Investment for the investee Indian Entity

  • An Indian entity which has received indirect foreign investment is required to comply with the entry route, sectoral caps, pricing guidelines and other FDI linked performance conditions as applicable for foreign investment.
  • Downstream investment by an LLP which has received foreign investment and is not owned and not controlled by resident Indian citizens or owned or controlled by person’s resident outside India is allowed in an Indian company operating in sectors where foreign investment up to 100 percent is permitted under automatic route and there are no FDI linked performance conditions.
  • Indirect foreign Investment is permitted in an LLP in sectors where foreign investment is allowed 100% under automatic route and there are no FDI linked performance conditions.
  • If the sponsors/ managers/ investment managers of an investment vehicle are individuals, for the downstream investment made by such investment vehicle not to be considered as Indirect Foreign Investment for the investee, the sponsors/ managers/ investment managers of the investment vehicle should be resident Indian citizens. In case the sponsor/ manager/ investment manager is organised in any other form, SEBI will determine whether it is foreign owned and/ or controlled or not.
  • The downstream investment that is treated as Indirect Foreign Investment for the investee Indian entity should have the approval of the Board of Directors as also a Shareholders’ Agreement, if any, of the investing Indian entity.
  • The Indian entity making the downstream investment that is treated as Indirect Foreign Investment for the investee Indian entity is required to bring in the requisite funds from abroad and not use funds borrowed in the domestic markets. Subscription by person’s resident outside India to non-convertible debentures issued by an Indian company will not be construed as funds borrowed/ leveraged in the domestic market. However, raising of debt and its utilisation will have to comply with the Act and the rules or regulations made thereunder.
  • Downstream investments which is treated as Indirect Foreign Investment for the investee Indian entity can be made through internal accruals. For this purpose, internal accruals will mean profits transferred to reserve account after payment of taxes.
  • When a company which does not have any operations makes downstream investment which is treated as Indirect Foreign Investment for the investee Indian entity or commences business(s), it will have to comply with the relevant sectoral conditions on entry route, conditionalities and caps.

RBI’s Single Reporting Form

  • The Reserve Bank of India (RBI) issued a notification on June 7, 2018 proposing integration of multiple foreign investment reporting formats into a combined online single master form (SMF).
  • Altogether, SMF combines reporting forms presently used for issue, transfer, disinvestment of capital instruments, capital contribution, depository receipts, convertible notes, employee stock options and downstream investment.
  • Once notified, Indian entities (companies, limited liability partnerships and investment vehicles) with foreign investment shall be required to comply with their applicable reporting obligations using SMF.
  • Provided below is an overview of the reporting process and SMF as applicable to an Indian company with foreign investment:
    • Reporting process: The new reporting regime shall apply prospectively and past filings continue to remain valid. Indian companies with foreign investment need not revise their filings with RBI for existing foreign investment, and new SMF reporting triggers when there is a change. However, RBI seeks to collate details of existing foreign investment. The objective is to streamline the interim process, and accordingly, requires Indian companies with foreign investment to update requisite details in a prescribed “entity master form”). The form was hosted on RBI’s website from June 28 till July 12, 2018, and defaulting companies were considered in breach of the Foreign Exchange Management Act (“FEMA”) as well as were not allowed to submit SMF in future when reporting obligation arises. The entity master form inter alia requires the following data:
      • corporate identification number, name, date of incorporation and registered office address
      • permanent account number allotted by income-tax department
      • RBI issued registration number for earlier foreign direct investment
      • disclosure of any investigation by any investigative agency for violation of foreign exchange law
      • details of main business activity, industrial classification code, and whether it is greenfield or brownfield
      • details of share capital and shareholding pattern on a fully diluted basis (i.e. assuming convertible securities are converted into shares)
      • total foreign investment in the company from direct investment and any other source
  • Form details: The details required in SMF are similar to the existing information required for reporting issue and transfer of capital by an Indian company with foreign investment. This is because SMF only consolidates and subsumes various applicable forms for different kinds of foreign investment. Under the old reporting regime, equity capital infusion was reported under FC-GPR and transfer of shares in FC-TRS. SMF incorporates both the forms and their old content like particulars of issue/transfer, details of foreign shareholder, valuation and pricing, and remittance details. Thus, information required remains largely unchanged, except the following which are new additions and will apply in specific cases:
    • details of tranche payments where partly paid up shares or share warrants are issued
    • details of deferred consideration, tranches, escrow arrangement and indemnification in case of share transfer involving these elements
    • relevant extracts of share transfer contract (if any) while reporting transfer
    • acknowledgement letter of foreign investment from initial non-resident investor where shares are transferred from non-resident to resident
    • Similar mandatory attachments as required for old filings like foreign inward remittance certificate and KYC, valuation certification from chartered accountant, etc. must be attached with SMF filing. In addition to the old attachments, SMF mandates attaching a certificate from practicing company secretary for every kind of filing including issue and transfer reporting. This certificate must be in prescribed format and affirm compliance with Companies Act and FEMA.
  • Apart from issue and transfer of capital reporting, SMF has introduced two new reporting requirements –
    • downstream investment reporting when an Indian company with foreign investment invests further in another Indian entity
    • any investment in an investment vehicle (such as real estate trust, funds, etc.). Hence, Indian companies must assess the applicability of these new conditions and comply
  • Where Company A has a foreign investment of less than 50%, and it further invests in Company B such investment in Company B, would not be taken as an indirect foreign investment but will be considered as Indian investment through Company A.
  • Where a Company A has more than 50% foreign investment and:
    • Invests 26% in company B, the entire 26% investment by Company A would be considered as an indirect foreign investment in Company B.
    • Invests 90% in Company B, the entire 90% investment in Company B would be considered as indirect foreign investment in Company B.
    • Where Company A has 65% foreign investment and makes 100% Downstream Investment in Company B, the indirect foreign investment in Company B is considered 65%.
  • ECB Revised Framework 2017- Simplification for General Corporate Purposes
    • External Commercial Borrowings, more commonly referred to as ECB, includes bank loans, buyers’ credit, suppliers’ credit, foreign currency convertible bonds, financial lease, foreign currency exchangeable bonds and securitize instruments which can be availed by specified Indian borrowers from recognized foreign lenders for the permitted end-uses under the regulations notified by the Reserve Bank of India (‘RBI’) from time to time. Any borrowing from a recognised foreign lender, whose minimum average maturity period is three years or more, qualifies as an ECB. Due to the prolonged duration of such borrowings, they qualify as medium and long term debts and thus, can be termed to be capital account transactions as defined under the Foreign Exchange Management Act, 1999. (Schedule I of Foreign Exchange Management (Permissible Capital Account Transaction) Regulations, 2000.)
    • ECB can be obtained either through automatic or approval route, depending on the restrictions in force from time to time. For automatic route, the cases are examined by the concerned Authorised Dealer Banks (‘AD Banks’), whereas under the approval route, the prospective borrowers are required to send their requests to the RBI through their concerned AD Banks.
    • This section focuses on a limited aspect of ECBs i.e. general corporate purposes, in view of the reformative outlook of the RBI.
    • In 2013 (Vide Circular No. 31 dated September 04, 2013), the RBI for the first time permitted the then eligible borrowers to avail ECB from their direct foreign equity holders with minimum average maturity of 7 years, for general corporate purposes, subject to certain other conditions specified therein, under the approval route.
    • In 2014,(Vide Circular No. 130 dated May 16, 2014) the RBI further permitted the then eligible borrowers to obtain ECB from direct equity holders for general corporate purposes (including working capital requirement), under the automatic route.
    • In 2015 (Vide Circular No. 32 dated November 30, 2015), the RBI issued a revised framework (‘Revised Framework 2015’) of ECB policy for further simplification of the procedure for availing ECB, inter-alia, for general corporate purposes. With the said Revised Framework, the eligible Indian borrowers could raise ECB from direct equity holder, indirect equity holder or from a group company with a minimum average maturity period of 5 years.
    • In March 2016 (External Commercial Borrowings (ECB) – Revised framework under A.P. (DIR Series) Circular No. 56 dated March 30, 2016), RBI further liberalised the ECB framework by allowing companies in infrastructure sector, non-banking financial companies – infrastructure finance companies (NBFC-IFCs), NBFCs-Asset Finance Companies (NBFC-AFCs), Holding Companies and Core Investment Companies (CICs) to raise ECB from recognised foreign lenders (including direct equity holder, indirect equity holder or from a group company) under Track I eligible borrowers of the Revised Framework 2015 with a minimum average maturity period of 5 years.
    • In October 2016 (External Commercial Borrowings (ECB) by Start-ups under A.P. (DIR Series) Circular No. 13 dated October 27, 2016), RBI permitted Start-up entities to access ECB for meeting their business expenses subject to certain other conditions specified therein. The Ministry of Commerce and Industry, Government of India, vide Notification No. GSR 180 (E) dated February 17, 2016 provides that an entity should be considered as a Start-up entity, for the first five years from its incorporation/registration, with a turnover in any financial year not exceeding USD 38.46 Million (USD 1 = INR 65), and if it is working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property rights.
  • ECB – New Regime pursuant to liberalisation in 2015 & 2016
    • Revised Framework 2015 segregates ECB broadly into following three tracks(External Commercial Borrowings, Trade Credit , Borrowing and Lending in Foreign Currency by Authorised Dealers and Persons other than Authorised Dealers dated January 01, 2016):
    Track I Medium term foreign currency denominated ECB with minimum average maturity period of 3 years for ECB up to USD 50 million or its equivalent/5 years for ECB beyond USD 50 million or its equivalent. For companies in infrastructure sector, non-banking financial companies – infrastructure finance companies (NBFC-IFCs), NBFCs-Asset Finance Companies (NBFC-AFCs), Holding Companies and Core Investment Companies (CICs), Foreign Currency Convertible Bonds (FCCBs)/Foreign Currency Exchangeable Bonds (FCEBs), the minimum average maturity period is 5 years irrespective of amount of ECB.
    Track II Long term foreign currency denominated ECB with minimum average maturity period of 10 years irrespective of the amount of ECB.
    Track III Indian Rupee denominated ECB with minimum average maturity period of 3/5 years. 3 years for ECB up to USD 50 million or its equivalent.5 years for ECB beyond USD 50 million or its equivalent. For companies in infrastructure sector, non-banking financial companies – infrastructure finance companies (NBFC-IFCs), NBFCs-Asset Finance Companies (NBFC-AFCs), Holding Companies and Core Investment Companies (CICs), Foreign Currency Convertible Bonds (FCCBs)/Foreign Currency Exchangeable Bonds (FCEBs), the minimum average maturity period is 5 years irrespective of amount of ECB.
    • The Revised Framework 2015 had bifurcated the permitted sectors of the older regime where ECB was permitted for general corporate purposes under 3 Tracks viz. Track I, Track II and Track III. RBI has updated the said tracks from time to time by issuing various circulars.
    • Presently, Track I eligible borrowers which can avail ECB for general corporate purposes include companies in manufacturing and software development sectors, shipping and airlines companies, Small Industries Development Bank of India (SIDBI), units in Special Economic Zone (SEZs), Export Import Bank of India (EXIM Bank) – only under the approval route, companies in infrastructure sector, Non-Banking Financial Companies – Infrastructure Finance Companies (NBFC-IFCs), NBFCs-Asset Finance Companies (NBFC-AFCs), Holding Companies and Core Investment Companies (CICs);
    • Track II eligible borrowers which can avail ECB for general corporate purposes includes Track I eligible borrowers, Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts(INVITs) coming under the regulatory framework of Securities and Exchange Board of India (SEBI) and Track III eligible borrowers which can avail ECB for general corporate purposes includes Track II eligible borrowers, NBFCs coming under the regulatory purview of RBI, NBFCs- Micro Finance Institutions (NBFCs-MFI), not for profit companies registered under the Companies Act, 1956/2013, societies, trusts and cooperatives (registered under the Societies Registration Act, 1860, Indian Trust Act, 1882 and State-level Cooperative Act/Multi-level Cooperative Act/State-level mutually aided Cooperative Acts respectively), non-government organisation (NGOs) which are engaged in micro finance activities, companies engaged in miscellaneous services viz. research and development (R&D), training (other than educational institutions), companies supporting infrastructure, companies providing logistics services, developers of Special Economic Zones (SEZs)/National Manufacturing and Investment Zones (NMIZs).
    • Although, the Revised Framework 2015 clearly states that Track I eligible borrowers can avail medium term foreign currency denominated ECB for general corporate purposes (including working capital) from foreign equity holders with a minimum average maturity period of 5 years, it appears that all Track II eligible borrowers can avail long term foreign currency denominated ECB for general corporate purposes (including working capital) from all the recognized lenders excluding overseas/ subsidiaries of Indian banks, with a minimum average maturity period of 10 years.
    • It also appears that all Track III eligible borrowers can avail Indian rupee denominated ECB for general corporate purposes (including working capital) from all the recognized lenders excluding overseas/ subsidiaries of Indian banks and foreign equity holder, with a minimum average maturity period of 3/5 years as specified herein above
    • Under the Revised Framework 2015, the definition of the ‘foreign equity holder’ was simplified and it includes:
    • A direct foreign equity holder with a minimum direct equity shareholding of 25% in the borrower entity
    • An indirect equity holder with a minimum indirect equity shareholding of 51% in the borrower entity
    • A group company with a common overseas parent.

    The individual limits, on the other hand, have remained the same for companies in manufacturing, infrastructure and software development sector. The following table explains the proposed model for obtaining ECBs in the permitted sectors-

    Individual limits (per financial year) Manufacturing and Infrastructure Sector including Hospitals and Hotels Software Development Sector Other Sectors
    Up to USD 200 Million or its equivalent Automatic Route Automatic Route Automatic Route
    Up to USD 500 Million or its equivalent Automatic Route Automatic Route Automatic Route
    Up to USD 750 Million or its equivalent Automatic Route Automatic Route Automatic Route
    Beyond USD 750 Million or its equivalent Automatic Route Automatic Route Automatic Route
    • Under the Revised Framework 2015, the criteria for determining the applicable route i.e. approval route/ automatic route is still largely based on individual limits.
    • With RBI’s initiative to liberalize financing for Start-up entities in 2016, they are now allowed to avail ECB for general corporate purposes under the automatic route with minimum average maturity period of 3 years for ECB up to USD 3 million or equivalent per financial year from lender(s)/ investor(s), who are residents of a country, who is a member of Financial Action Task Force (FATF) or member of FATF- Style Regional Bodies and not from any country who has been recognised as a jurisdiction
    • Having a strategic Anti-Money Laundering or Combating the Financing of Terrorism deficiencies to which counter measures apply
    • That has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the FATF to address the deficiencies. However, overseas branches/ subsidiaries of Indian banks and overseas wholly owned subsidiary/ joint venture of an Indian company shall not be considered as recognized lenders for ECB to be raised by Start-up entities.
    • Further, ECB Ratio will not be applicable, in case of Start-up entities.
  • The ECB guidelines have further been rationalised and liberalised by The Reserve Bank of India (RBI) in consultation with the Indian Government as the following:
    • Rationalisation of all-in-cost for ECB under all tracks and Rupee Denominated Bonds (RDBs)- With a view to harmonising the extant provisions of Foreign Currency and Rupee ECBs and RDBs, a uniform all-in-cost ceiling of 450 basis points over the benchmark rate has been stipulated. The benchmark rate that has been decided upon is a 6 month USD LIBOR (or applicable benchmark for respective currency) for Track I and Track II, while it would be prevailing yield of the Government of India securities of corresponding maturity for Track III (Rupee ECBs) and RDBs.
    • Revisiting ECB Liability to Equity Ratio provisions– the ECB Liability to Equity Ratio has been increased for ECB raised from direct foreign equity holder under the automatic route to 7:1. This ratio will not be applicable if total of all ECBs raised by an entity is up to USD 5 million or equivalent.
    • Expansion of Eligible Borrowers’ list for the purpose of ECB– Under this category the following have been permitted:
    • Housing Finance Companies, regulated by the National Housing Bank, as eligible borrowers to avail of ECBs under all tracks. Such entities should have a board approved risk management policy and shall keep their ECB exposure hedged 100 per cent at all times for ECBs raised under Track I.
    • Port Trusts constituted under the Major Port Trusts Act, 1963 or Indian Ports Act, 1908 to avail of ECBs under all tracks. Such entities should have a board approved risk management policy and shall keep their ECB exposure hedged 100 per cent at all times for ECBs raised under Track I.
    • Companies engaged in the business of Maintenance, Repair and Overhaul and freight forwarding to raise ECBs denominated in INR only.
      • Rationalisation of end-use provisions for ECBs- Until recently, a positive end-use list was prescribed for Track I and specified category of borrowers, while negative end-use list is prescribed for Track II and III. Now there would  have only a negative list for all tracks. The negative list for all Tracks would include the following:
    • Investment in real estate or purchase of land except when used for affordable housing as defined in Harmonised Master List of Infrastructure sub sectors notified by Government of India, construction and development of SEZ and industrial parks/integrated townships.
    • Investment in capital market
    • Equity investment

    Additionally for Tracks I and III, the following negative end uses would also apply except when raised from Direct and Indirect equity holders or from a Group company, and provided the loan is for a minimum average maturity of five years:

    • Working capital purposes
    • General corporate purposes
    • Repayment of Rupee loans

    Lastly for all Tracks, the following negative end use would also apply:

    • On-lending to entities for the above mentioned activities.

It is pertinent to note that ECBs have developed as an instrumental mode of investment into Indian companies, which is of prime importance when the Indian Government has initiated Make in India campaign wherein the sole objective is to make FDI policy more progressive and turn India into the most coveted investment destination of the world.