The Finance Ministry has given government powers under FEMA to regulate non-debt capital transactions
The Finance Bill has taken away RBI’s power to regulate non-debt capital account transactions.
Till now, Section 6 of the Foreign Exchange Management Act (FEMA) granted powers to the RBI to regulate, restrict or prohibit capital account transactions, in consultation with the Central government. The Section 6 of FEMA governs capital transactions.
Under this, the RBI had formulated various regulations to regulate capital account transactions, including the foreign exchange management.
However, Finance Ministry has amended the Section 6 of FEMA through the Finance Bill. The Finance Bill passed by Parliament shifted the power to regulate non-debt capital account transactions from RBI to the Centre. It has limited the power of RBI to only capital account transactions involving debt instruments.
The Finance Ministry will now decide on the definition of ‘Debt Instruments’ under FEMA.
The government said that the earlier provisions led to confusion on capital transactions and changes will help clear foreign investment proposals faster.
The Bill has also deleted Section 6 (3), which empowered the RBI to prohibit, restrict or regulate transfer or issue of any foreign security by a person resident in India or person resident outside India. It also empowered RBI to regulate transfer of immovable property outside India and buy or transfer of immovable property in India.
Moreover, it will be the Central government which will now define what is the debt instrument. It is expected that the move will lead to simplification and acceleration to approvals for deals that are not debt financed.
Till now, Section 6 of the Foreign Exchange Management Act (FEMA) granted powers to the RBI to regulate, restrict or prohibit capital account transactions, in consultation with the Central government. The Section 6 of FEMA governs capital transactions.
Under this, the RBI had formulated various regulations to regulate capital account transactions, including the foreign exchange management.
However, Finance Ministry has amended the Section 6 of FEMA through the Finance Bill. The Finance Bill passed by Parliament shifted the power to regulate non-debt capital account transactions from RBI to the Centre. It has limited the power of RBI to only capital account transactions involving debt instruments.
The Finance Ministry will now decide on the definition of ‘Debt Instruments’ under FEMA.
The government said that the earlier provisions led to confusion on capital transactions and changes will help clear foreign investment proposals faster.
The Bill has also deleted Section 6 (3), which empowered the RBI to prohibit, restrict or regulate transfer or issue of any foreign security by a person resident in India or person resident outside India. It also empowered RBI to regulate transfer of immovable property outside India and buy or transfer of immovable property in India.
Moreover, it will be the Central government which will now define what is the debt instrument. It is expected that the move will lead to simplification and acceleration to approvals for deals that are not debt financed.
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