Non-resident Indians (NRIs) have long been considered as a separate category of investors who have enjoyed some privileges compared to other classes of foreign investors. NRIs have been allowed to investment either on a repatriable basis (with more stringent norms) and on a non-repatriable basis (with less stringent norms).
Earlier this week, by way of Press Note No. 7 (2015 Series), the Government of India introduced further changes to the Foreign Direct Investment (FDI) Policy relating to NRI investments. The changes relate to two aspects: (i) the definition of an NRI, and (ii) investments by NRIs on a non-repatriable basis.
Until this week’s change, for the purposes of foreign investment an NRI was defined to mean a non-resident person who is a citizen of India or one who is a person of Indian origin (PIO). However, in January 2015, the Government of India did away with the concept of PIO by effectively merging it with the Overseas Citizen of India (OCI). An OCI is defined in section 7A of the Citizenship Act, 1955 in a manner similar to that of the PIO, but in more restrictive terms. For example, a great grandchild of a citizen and a spouse of a citizen are not included within an OCI.
Given this transition from PIO to OCI, under the new Press Note, for foreign investment purposes, an NRI would now mean an overseas resident who is either a citizen of India or an OCI cardholder. It appears that this change in the foreign investment policy is largely driven by the preceding changes to the Citizenship Act, and the need to streamline the policies.
The more substantive change in Press Note No. 7 relates to the fact that NRI investments made on a non-repatriable basis will now “be deemed to be domestic investment at par with the investment made by residents”. NRI investments on a non-repatriable basis are to be made in accordance with Schedule 4 of the FEMA (Transfer or Issue of Security by Persons Resident Outside India) Regulations, 2000. The new change is significant as NRI investments on a non-repatriable basis would now been treated as domestic investments for various purposes, including sectoral caps, pricing guidelines, types of investment instruments, downstream investments, and the like. This would give rise to additional structuring opportunities for foreign investments.
While the Press Note indicates the broader change in the nature of the policy for NRI investments on a non-repatriable basis, the details have to be contained in the necessary amendments, including to Schedule 4 of the FEMA Regulations discussed above.
 A PIO was a foreign citizen who (i) held at any time an Indian passport, (ii) has either parents, grandparents or great grandparents who were born in and were permanent residents of India, or is a spouse of a citizen or other persons referred to in (i) and (ii). See: http://www.immihelp.com/nri/piocard/.