Key facts
- All foreign individuals can now directly invest in listed Indian companies.
- This expands investment access beyond Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs).
- New rules allow designated repatriable rupee accounts for these investments.
- The changes aim to increase foreign currency inflows and stabilize the Indian rupee.
- Breaching investment limits will result in reclassification to Foreign Direct Investment (FDI).
The Reserve Bank of India (RBI) has opened direct equity investment in listed Indian firms to all foreign individuals, a move intended to broaden the investor base and bolster foreign currency inflows to stabilize the rupee amidst ongoing foreign portfolio investor (FPI) outflows. Previously, foreign individuals primarily invested in Indian markets through pooled investment vehicles or limited NRI channels. The amended rules under the Foreign Exchange Management Act (FEMA) now permit 'persons resident outside India' to invest via portfolio investment schemes, previously exclusive to NRIs and OCIs. Commercial banks will also be able to open repatriable rupee accounts for these individuals. This liberalization comes as FPIs have been withdrawing funds from Indian equities, putting pressure on the rupee. The RBI stated that overseas individuals can invest in equity instruments of listed firms on recognized stock exchanges with enhanced limits. Any breach of these investment limits will lead to a reclassification from foreign portfolio investment to foreign direct investment. Challenges in implementation may arise from Know Your Customer (KYC) checks and client onboarding processes, which can be complex for foreign citizens seeking to open Indian rupee bank accounts. The government and RBI's actions are seen as a concerted effort to boost foreign exchange reserves, which have seen a drawdown due to interventions supporting the rupee, particularly following the US-Iran conflict. In separate but related measures, the RBI recently introduced a special window for banks to mobilize foreign currency non-resident (FCNR) deposits and offered a fixed-rate swap facility for external commercial borrowings (ECBs) by public sector units. The central bank also amended rules for repatriating proceeds from non-debt investments.