The Indian government has been consistently making efforts to revamp the entire FDI regime and ease the process of foreign investment. The latest initiative in this regard has been the simplification of reporting process involved in foreign investment process.
It was long felt that the prevalent process for FDI reporting was inconvenient and cumbersome. Multiple platforms for reporting of foreign investment transactions made the entire process too complicated. There were 12 different forms for various components of a transaction, making the compliance process too unwieldy.
In order to combat this mis-management, the Reserve Bank of India (RBI) in its Monetary Policy Review held in April 2018 expressed their intention to create a unified reporting structure for foreign investments in India. This article discusses the proposed uniform structure and analyses the benefits emanating out of the new proposal.
What are the new changes introduced in the Foreign Investment Reporting Process
There are three major changes proposed in the foreign investment reporting process:
We shall discuss each of these in detail below:
Single Master Form (SMF)
On June 7, 2018 RBI issued a circular vide which it sought to introduce a Single Master Form or SMF which would collate all the reporting norms for foreign investment transactions into one single document. Following are the main features of the SMF:
Entity Master Form (EMF)
The consolidation of forms together into one single document gives rise to the problem of any historical data being lost. The Entity Master Form or EMF has been introduced to address this issue. Prior to implementing the SMF, the RBI would provide an interface to the companies so that they can include data pertaining to total foreign investment received by them. This inputting would be done online and would contain all historical data. EMF is a single time requirement. The penalty imposed on the non-compliance of EMF requirement is a blanket prohibition of receiving any foreign investment in the future.
In order to simplify and ease the process of filing SMF and EMF, the RBI introduced an online application called the FIRMS. Reporting on FIRMS is to be done in the following manner:
Analysis of the Proposed Changes
The purpose behind introducing a unified form for reporting on foreign investment transactions is to simplify and streamline the reporting process. It is a laudable step. This would enable foreign investors to escape the complex regulatory processes. However, there are certain loopholes which merit attention:
However, despite all the aforementioned loopholes, the introduction of a unified reporting process is a welcome step and would definitely pave the way for many more such progressive changes.
One of the positive effects of this change would be the creation of a digital database containing FDI data of all entities. The introduction of severe penalties would put entities into action and hence help RBI in maintaining greater control. Moreover, the introduction of an app for reporting foreign investment has made something as cumbersome as filing forms even easier than before.