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CS Executive · Economic, Commercial and Intellectual Property Laws · Foreign Direct Investments - Regulations and Policy

Under the Foreign Exchange Management Act, 1999, who may specify, in consultation with the Reserve Bank, the classes of capital account transactions that are NOT debt instruments and are permissible (the route through which equity-type FDI limits and conditions are laid down)?

The Central Government, in consultation with the Reserve Bank, prescribes permissible capital account transactions not involving debt instruments, along with their limits and conditions. The Reserve Bank's own specifying power relates to debt instruments, which is why equity-type FDI rules flow from the Central Government.

  1. AThe Central Government, in consultation with the Reserve BankCorrect
  2. BThe Reserve Bank alone, without consulting anyone
  3. CThe Securities and Exchange Board of India
  4. DThe Authorised Dealer bank handling the remittance

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 and conditions. The Reserve Bank's power under section 6(2) relates to debt instruments, so the option naming the Reserve Bank alone is wrong.

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