FEMA revamp to allow Dhaka firms likely

India is considering amendments to the Foreign Exchange Management Act to allow corporate entities from Bangladesh to invest in India. But restrictions on individual investments from the country are likely to continue because of security concerns.

The proposal is under active consideration of the finance ministry and the Reserve Bank of India. Sources close to the development said a final decision would be taken at the highest level.

At present, corporate entities from Bangladesh and Pakistan are barred from investing in India under FEMA rules. The rules also prohibit setting up of a branch or liaison office, without the RBI's approval, by Pakistani, Sri Lankan, Afghan, Iranian and Chinese citizens.

The investment restrictions for citizens from Sri Lanka were lifted in September 2004.

The move is being considered as a sweetener for Bangladesh, where several Indian companies, including Tata Power and the Gas Authority of India Ltd, are keen to invest. The Bangladesh government is yet to clear the investments.

Officials said the move was also being considered as a precursor to finalising a bilateral investment protection agreement with Bangladesh. The agreement was expected to be signed during the recent visit of Bangladesh Premier Khaleda Zia to India. However, it was held up on account of the restrictions on corporate investments from Dhaka.

According to Akash Gupt, principal consultant, PricewaterhouseCoopers the proposed relaxation will encourage direct investment.

"In practical terms, entrepreneurs from Bangladesh and even Pakistan have made investments in India through other intermediate jurisdictions like Mauritius and Cyprus.

The removal of these prohibitions will encourage more direct investment," he said.