FDI DEALS SHOULD NOT COME WITH ANY STRINGS ATTACHED: RBI

The Reserve Bank of India (RBI) is hardening its stand on FDI deals to drive home the point that there should be no strings attached to such inbound flows. In eight out of 10 FDIs, Foreign investors have a right to sell back shares to Indian promoters if certain conditions are not fulfilled. In the last few months, the Reserve Bank of India (RBI) has questioned many such deals as it thinks such inflows are foreign 'loans' and not 'equity'. This is turning out to be a hotly-debated issue amid arguments that such a regulatory stance is not only misplaced but can also slow down FDI. But, according to recent communications, the central bank is not only sticking to its stand but also thinks
that such transactions are 'illegal'. The RBI feels that a sell back right, or a put option, to foreign investors amounts to one-to-one derivative deals. Since equity derivatives can be traded only on stock exchanges, such over-the-counter (OTC) contracts are not permitted under law.