RBI operationalises framework for reclassifying FPI to FDI
Why focus: Tests Arvind Mayaram panel's 10% FPI/FDI threshold — high-yield GS3 static economy concept, Assertion-Reason
In News
What Happened
Why It Matters
Background
History & Context
What Changed
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BEFORE: FPIs breaching the 10 percent cap faced forced divestment or unclear conversion protocols. NOW: FPIs have a clear option to reclassify the entire holding as FDI within five trading days, provided they secure concurrence from the investee company and necessary government approvals.
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BEFORE: Ambiguity existed regarding the treatment of reclassified investments if stakes were later reduced. NOW: Once reclassified as FDI, the entire investment continues to be treated as FDI indefinitely, even if the holding subsequently falls below the 10 percent threshold.
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BEFORE: Custodian and reporting roles during a breach were less standardized. NOW: The FPI must immediately notify its custodian, who freezes further equity purchases in that company until the transfer from the FPI demat account to the FDI demat account is fully completed and reported.
Prelims Angle
NCERT Connection
Practice Questions
Q1
With Reference ToWith reference to the RBI's operational framework for reclassifying Foreign Portfolio Investment (FPI) to Foreign Direct Investment (FDI), consider the following statements: 1. Reclassification must be initiated within five trading days from the date of settlement of the trade causing the breach. 2. The facility of reclassification is permitted even in sectors where FDI is prohibited. 3. Once reclassified as FDI, the investment continues to be treated as FDI even if the holding falls below the 10 percent threshold. Which of the statements given above is/are correct?