Winds of change - FEMA Non-Debt Instrument Rules

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Administrative powers to the RBI: The NDI Amendment Rules have introduced new Rule 2(A) to the NDI Rules to empower the RBI to (i) administer the NDI Rules; and (ii) interpret and issue directions, circulars, instructions and clarifications it deems fit, for effective implementation of the NDI Rules.

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RBI’s approval authority: When the NDI Rules were notified, the RBI was required to consult the Central Government for approving investments in India by persons resident outside India which were not specifically permitted under the Foreign Exchange Management Act 1999 (FEMA) or rules and regulations made thereunder. The NDI Amendment Rules have now done away with the requirement of consulting the Central Government and the RBI is solely empowered to approve such investments in India. Needless to say, wherever the Government approval is prescribed under the NDI Rules, such approval will still be required to be sought from the Department for Promotion of Industry and Internal Trade (DPIIT) and/ or any of the prescribed ministry/ department of the Government of India and the RBI will not have jurisdiction to grant such approvals.

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Foreign Investment in air transport services: In light of the Central Government’s proposed strategic disinvestment from Air India Limited (Air India), Press Note 2 of 2020 (Press Note 2/2020) was issued by the DPIIT, Ministry of Commerce and Industry, Government of India on 19 March 2020. The Press Note 2/2020 amended the foreign direct investment policy on civil aviation to permit foreign investment in Air India by non-resident Indians up to 100% under automatic route, provided that substantial ownership and effective control of Air India continues to be vested with Indian nationals.

Further, to align with Schedule XI of Aircraft Rules 1937, Air Operator Certificate to operate scheduled air transport services (including Domestic Scheduled Passenger Airline or Regional Air Transport Service) can also be granted to a body corporate in addition to a company subject to the conditions that (i) it is registered and has its principal place of business within India; (ii) the Chairman and at least two-thirds of its Directors are citizens of India; and (iii) it’s substantial ownership and effective control is vested in Indian nationals.

The NDI Amendment Rules have notified the changes brought in the air transport services sector under Press Note 2/2020 and the NDI Amendment Rules are now aligned with the Press Note 2/2020.