Following the announcement made by the Finance Minister in his Budget Speech for 2001-2002 the Reserve Bank has issued the following Notifications to liberalise the Capital Account for certain purposes:

1. Indian companies wishing to make acquisitions of foreign companies or direct investment abroad in Joint Ventures/Wholly Owned Subsidiaries may now invest upto US $ 50 Million on an annual basis through Automatic Route without being subject to the three year profitability condition. Thus, the limit of investment upto US $ 50 million which was earlier available in a block of three years would now be available annually without any profitability condition.
2. Companies may invest 100 per cent of the proceeds of their ADR/GDR issues for acquisitions of foreign companies and direct investments in Joint Ventures and Wholly Owned Subsidiaries . Earlier such investments out of ADR/GDR issues were subject to a ceiling of 50 per cent.
3. A new facility for additional Block Allocation of foreign exchange to companies with proven track record which have already exhausted the limit of US $ 50 million available under the Automatic Route for investment/acquisition overseas is also being instituted by the RBI. While considering such application, Reserve Bank would consider (a) the financial position and business track record of the Indian company (b) prima facie viability of the investments and justification for additional requirement of foreign exchange and (c) contribution of the applicant company to the external trade and other potential benefits to the country out of the investment. Such Block allocation will be sanctioned by the Reserve Bank in advance and will, therefore, enable Indian companies to negotiate and finalise their acquisitions/ direct investments without having to secure permission of the Reserve Bank, subject to post-facto reporting to the RBI. While providing such Block Allocation RBI would also specify the means of financing as well as the time period over which such permission would be valid.
4. Any Indian company that has issued ADRs/GDRs may acquire shares of foreign companies engaged in the same area of core activity upto an amount of US $ 100 million or an amount equivalent to ten times of their exports in a year, whichever is higher. Earlier this facility was available only to Indian companies in certain sectors.
5. Two-way fungibility in ADR/GDR issues of Indian companies has been introduced, subject to sectoral caps, wherever applicable. Stock brokers in India may now purchase shares and deposit these with the Indian Custodian for issue of ADRs/GDRs by the overseas depository to the extent of the ADRs/GDRs that have been converted into underlying shares.
6. Indian companies will now be able to sponsor ADR/GDR issues with an overseas Depository against shares held by its shareholders who wish to use this option. The issue price shall be determined by the Lead Manager to the issue and the issue proceeds shall be repatriated within one month. The sponsoring company shall have to comply with the provisions of the Scheme for Issue of Foreign Currency Convertible Bonds and Ordinary Shares (through Depository Receipt Mechanism) Scheme, 1993 and guidelines issued thereunder by the Central Government.
7. The ban on overseas investments by registered partnership firms has been removed. Partnership firms providing certain specified professional services, viz. Chartered Accountancy, Legal services, Medical and Health care services, Information technology and Entertainment Software related services would now be able to invest abroad in foreign concerns in the same line of activity upto US $ 1 million under Automatic Route. For such investments exceeding US $ 1 Million approval of the Reserve Bank will be necessary.
8. Indian employees who have the benefit of ESOP schemes in foreign owned companies can now invest upto US $ 20,000 per annum. Earlier this facility was available only to the extent of US $ 10,000 in a block of five years.
9. Foreign Institutional Investors (FIIs) can invest in a company under the protfolio investment route upto 24 per cent of the paid up capital of the company. This can be increased to 40 per cent with the approval of the General Body of the shareholders by a special resolution. This limit has now been increased from 40 per cent to 49 per cent.

Necessary Notifications have been issued and are available on the RBI Website www.rbi.org.in

Notification No. FEMA. 41 /2001-RB (March 2, 2001)

Foreign Exchange Management (Transfer or Issue of any Foreign Security) (Amendment) Regulations, 2001