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CS Executive · Economic, Commercial and Intellectual Property Laws · Overseas Direct Investment

Mehta Auto Components Ltd proposes an overseas investment that involves no debt instruments, such as equity in a foreign subsidiary. Under the Foreign Exchange Management Act, 1999, who prescribes the permissible classes of such capital account transactions, the limits and the conditions?

The Central Government, in consultation with the Reserve Bank, prescribes the permissible classes, limits and conditions for capital account transactions not involving debt instruments. The Reserve Bank's own power, exercised in consultation with the Central Government, relates to transactions involving debt instruments.

  1. AThe Central Government, in consultation with the Reserve BankCorrect
  2. BThe Reserve Bank alone, without consulting the Central Government
  3. CThe Adjudicating Authority appointed under the Act
  4. DThe Special Director (Appeals)

Explanation

Section 6(2A) empowers the Central Government, in consultation with the Reserve Bank, to prescribe the permissible classes of capital account transactions not involving debt instruments, along with limits and conditions. The RBI-led route applies to debt instruments under section 6(2), so the RBI-alone option is wrong.

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