CS Executive · Economic, Commercial and Intellectual Property Laws · Foreign Direct Investments - Regulations and Policy
Under the Foreign Exchange Management Act, 1999, who has the power to prescribe the classes of capital account transactions NOT involving debt instruments that are permissible, along with limits and conditions, as is relevant to FDI entry conditions?
The Central Government, in consultation with the Reserve Bank, prescribes permissible capital account transactions not involving debt instruments, including limits and conditions. The Reserve Bank's own specifying power under section 6(2) is confined to transactions involving debt instruments, so equity-type FDI conditions flow from the Central Government.
- AThe Reserve Bank, acting entirely on its own
- BThe Central Government, in consultation with the Reserve BankCorrect
- CThe authorised dealer through which the remittance is made
- DThe Securities and Exchange Board of India, in consultation with the Central Government
Explanation
Section 6(2A) empowers the Central Government, in consultation with the Reserve Bank, to prescribe permissible classes of capital account transactions not involving debt instruments, the limits of foreign exchange, and conditions. Equity investment is a non-debt instrument transaction, so the Reserve Bank acting alone (the first option) is wrong; its power under section 6(2) relates to debt instruments.
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