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

Which statement correctly describes how FEMA treats a capital account transaction involving debt instruments versus one not involving debt instruments, which matters for conditions attached to foreign investment?

For capital account transactions involving debt instruments, the Reserve Bank specifies permissible classes, limits and conditions in consultation with the Central Government. For those not involving debt instruments, the Central Government prescribes them in consultation with the Reserve Bank, as per Sections 6(2) and 6(2A).

  1. ABoth classes are specified solely by the Reserve Bank without any consultation
  2. BBoth classes are prescribed solely by the Central Government without any consultation
  3. CThe Reserve Bank, in consultation with the Central Government, specifies permissible classes involving debt instruments, while the Central Government, in consultation with the Reserve Bank, prescribes those not involving debt instrumentsCorrect
  4. DThe Reserve Bank prescribes those not involving debt instruments, and the Central Government specifies those involving debt instruments

Explanation

Section 6(2) gives the Reserve Bank, in consultation with the Central Government, the power for debt instrument transactions. Section 6(2A) gives the Central Government, in consultation with the Reserve Bank, the power for transactions not involving debt instruments. The other options reverse the roles or drop consultation.

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