The Reserve Bank of India's blanket ban on investment by overseas corporate bodies will act as a dampener to the operations of software development centres, business process outsourcing and call centres in the country since many of them have been set up by non-resident Indians through corporate entities.
Further, the central bank's decision not to permit fresh OCB's investments in shares of Indian companies will impact the shareholding pattern of these companies.
OCBs that have shares in companies will henceforth not be allowed to subscribe to rights issues, as and when they come up.
PricewaterhouseCoopers executive director Vivek Mehra told Business Standard: "The decision discriminates between Indians and foreign investors, as the latter can continue to invest in the country."
Investments by OCBs on the other hand, have been banned through the portfolio as well as direct (FDI) route. The RBI clamped down on portfolio investments by OCBs in November 2001.
What's more, the RBI's decision also prohibits unincorporated entities from making fresh investment under the FDI scheme (including automatic route).
This prohibition could adversely effect strategic investments by mutual funds, venture capital funds and other organisations, global consultants said.
Though the prohibition primarily comes with the intention of restricting round tripping of money by Indian residents through their NRI counterparts overseas, the RBI circular seems to withdraw the special status even for genuine NRI businessmen who are now looking at doing business in India, Mehra said.
NRIs have been major investors in BPO, call centres and software development operations in the country.
The circular takes away the ability of an individual to invest through a company, which is essential for various business reasons, including funding and tax purposes.
In contrast, foreign companies can invest in the country even if they have their base in tax havens such as the Cayman Islands.
"The unfortunate part is that the RBI circular discriminates between NRIs and any other foreigner, as the automatic route for foreign direct investment would still be available to a foreign owned company, and is denied to one (company) with NRI ownership," said Mehra.
Big impact
- All doors closed for investments by NRI owned OCBs.
- Move discriminates NRIs vis-à-vis foreign investors.
- Contradicts government's initiatives to woo NRI investors.
