Finance Ministry eases rules for bonus share issue by companies in FDI-barred sectors
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The finance ministry has amended rules to allow Indian companies, engaged in sectors where the foreign direct investment (FDI) is barred, to issue bonus shares to their pre-existing non-resident shareholders.However, the stakes of such shareholders must remain unchanged even after the bonus share issue, the ministry said while notifying the Foreign Exchange Management (Non-debt Instruments) (Amendment) Rules, 2025. The new rules take effect from June 11.The move, experts said, will allow the companies flexibility to go for equity restructuring and also improve capital management without breaching the extant FDI policy The notification comes after a similar relief was announced in the FDI policy in April by the Department for Promotion of Industry and Internal Trade (DPIIT) in April.The ministry has now brought about the change by introducing a new sub-rule in the Foreign Exchange Management (Non-debt Instruments) Rules, 2019.The notification also said any 'bonus shares issued to such shareholders prior to the date of commencement of this sub-rule shall be deemed to have been issued in accordance with the provisions of these rules' or some other related regulations.The move is part of the broader government efforts to further liberalise the rules on equity investments to enable India to attract more foreign capital.Sandeep Jhunjhunwala, Sandeep Jhunjhunwala, partner at Nangia Andersen LLP, said the notification makes it clear that 'bonus issues done in the past would (also) get a retrospective benefit of this clarificatory amendment'.It also aims to remove any ambiguity over the retrospective application of such a relaxation introduced in the FDI policy by the DPIIT in April, he added. The ambiguity had arisen due to the fact that FDI rule changes are usually implemented prospectively.Finance secretary Ajay Seth had in February told ET that the finance ministry and the Reserve Bank of India were in talks to further ease foreign exchange rules, especially with regard to non-debt instruments, and update them to modern standards.Given that sector-specific limits for FDI have already been substantially relaxed, the government is turning its attention to easing restrictive regulations to woo foreign investors amid global headwinds.Having scaled a peak of almost $85 billion in FY22, total FDI inflows into India fell over two years to touch $71 billion in FY24. It again rebounded to $81 billion last fiscal.
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