INTRODUCTION AND DESIGN OF TEE STUDY

Introduction

About 1500 years ago, the Tamil Poet Avvaiyar said

to the young men of her generation: "Go across many seas and

seek the wealth of human achievements." The enduring

maritime, commercial and cultural contacts that Indians of

her generation forged with South East nations have led to a

strong Indian presence there.'

India, while poor in material terms, is rich in

talent, ambition and drive. This means that Indians have

been able to go to the farthest corners of the globe

carrying with them no capital, but relying solely upon their

intrinsic abilities, their willingness to work and deter- 2

mination to succeed.

1. Jerry Rao, Indians Abroad - Coming of age, Business India (The Magazine of the Corporate World), Bombay, 2-15 May, 1988, p.90.

2. Gopaldoss. Bi Facilities and Incentives for Non-resident Indians, Chartered Accountant, Vol.XXXVI1, No.3, September, 1988, p.42.

In almost every country of the world there is a

sizeable population of Indians. Many had migrated

generations ago and settled down there as nationals of the

country of their adoption. In more recent years, there has

been a revival of migration3. Some have taken up short-term

assignments, while others have taken up long-term residence

abroad. Although many of them have become citizens of other

countries, their social, cultural, and emotional ties with

India and Indians have continued to be strong. As a result

of their hard work and initiative, they have accumulated

large resources of investible funds.4

It is an indisputable fact that India needs a

substantial inflow of capital resources from abroad. This

is mainly to supplement domestic savings, and also to

finance the deficit in the balance of payments and trade.'

To tide over the difficult balance of payments

situation, and to bring about a turn-round in the balance of

payments, the Government of India (GOI) have initiated a

number of measures to generate additional resources through

3. Agrawal. A.N, Varma. H . 0 , Gupta. R.C, "India" Economic Information Yearbo~k, 1988-89, National Publishers House, -- New Delhi, p.47.

4. Gopalakrishnan. P.S, La%-Regarding-Non-residents in India, (1985), S.Chand & Co. Ltd., New Delhi, p.5.

5. Kalvan B&ner.ii. Indian Banks Overseas - An Untapped potential, T'e JouEnal of the Indian ~ n s t i t u t e o f Bankers, Diamond Jubilee Special Issue, 1928-1988, V01.59, No.1, January-March, 1988, pp.57-62.

different channe~s.~ ~t is a recognised fact that the Non-

Rpsident Indians (NRIs) command sizeable resources in terms

of finance, scientific talent and technical know-how.

Though they are settled in distant lands, their links with

India still continue to help mobilisation of re~ources.~ In

a developing economy, like India, investments from NRIs are

indispensable to accelerate the rate of industrialisation

and growth, and they have assumed a great importance in

recent years.

There are about 12 million NRIs spread over 142

countries. Given attractive facilities and incentives,

estimates of NRI funds seeking investment in India vary from

Rs.10,000 crores to 15,000 crores per The success of

NRIs in the scientific, economic and cultural fields has

been a matter of great satisfaction to the country. India

has had a continued association with them, and their

investments have been playing a significant role in the

crucial area of the country's balance of payments.'

Guidelines for Indians Abroad, (1984). Aruna Publications, New Delhi, p.1.

7 . Kuldeep K. Hajeela, " A Com lete Guide for Non-resident Indians", Jaico ~ublishTng ;use, Bombay, p.4.

8. Murugesan. B, Investment Incentives and Concessions to Non-resident Indians, Indian Journal of Commerce (Quarterly), Vol.XLI1, Part 4, No.157, October-December, 1988, pp. 33-38.

9. Exchange Control Facilities for-Investment by NRIs, (1889), RBI, Regant Publishers Pvt. Ltd., Bombay, p.46.

The NRIs have contributed greatly to the

industrial promotion and development of the country by

making available foreign exchange, technical skill,

entrepreneurship, knowledge and contacts with international

market, etc. A large number of them settled in developed

countries like the UK, the USA, West Germany, Canada, etc.,

have at their command immense technical talents; most of

them have migrated after their professional education in

engineering, science or technology in India; they have

worked in those countries for more than two or three decades

specialising in their chosen areas, and benefitting from the

exposure to and knowledge about the most advanced

technologies. lo

The GO1 naturally stressed upon the technological

opportunities in the country to moderuise itself at a fast

pace, and therefore asked the NRIs to use the various

facilities offered for their investments. Apart from the

technological imperative, NRI investment is welcome for the

capital it would bring into the country.ll India is

critically short at the margin of financial resources, and

outlays for serval crucial areas in the public sector in the

Seventh Plan are being kept at lower than desirable

lO.Badhwar, WNon-resident Indians' Complete Reference Manual, (1986), Law and Business Books, New Delhi, p.18.

11.Venkataraman. P . A , NRI Deposits and Profitability, Financial Express (Daily), October 4, 1983, p.2,

levels. lZ A shift from the public to private sector is no

solution to the resources constraints. What is needed is an

increase in resources for additional investment, and this

can come from outside. Here NRIs can play a very

constructive role.

There are some issues of NRI policy which deserve

special attention. First of all, why should India promote

NRI investment? Is it worth the trouble? As a potential

source of foreign funds, the NRI contribution certainly is

worthwhile. It might look small today, but given the

incentives, it is possible that India could mop up a fair

amount over a period of time.

When liberalization of NRI investments was

announced in the Budget speech for 1982-83, the amount

invested by NRIs that year in these schemes was Rs.59.63

crores. It steadily rose to Rs.883.86 crores in 1986-87,

and crossed the Rs. 1,000 crores mark at Rs. 1,025.76 crores13

by December, 1987.

However, despite several incentives, the NRI fund

flow has not picked up to the desired level, especially the

investment inflow. In fact, the composition of funds flow

12.George. C.T, Interest Structure of Deposits in Banking - I, Financial Express, March 28, 1988, p.5.

13.Sb8hil K. Jain, Investment Opportunities, %Investment Oowrtunities (Fortnightly), 1-15 April, 1989, p.3.

is highly skewed. Eventhough the total investment made by

NRIs in different schemes has been increasing, the rate of

growth of investments has been declining of late.14 It was

about Rs. 1,970 crores in the initial year of the scheme.

The increase in investment was about 48 per cent in 1985-86

over 1984-85, 43 per ceng5 in 1986-87 over 1985-86.

NRIs may broadly fall under two categories; those

in the Gulf regions and those in other countries. The

majority of the NRIs in the Gulf regions have gone for

taking up employments which may not last indefinitely, and

havc to return to lndin on thc cxpiry of Ll~cir cmploymcnL

period and visa. Regardless of incentives offered, these

NRIs would invest in India. It is for NRIs in other

countries for whom the incentives are relevant. It will not

be administratively possible to formulate different sets of

incentives even if they be not discriminatory. Though NRIs

in other countries may have various social, political, if

not purely partriotic reasons for making investments in

India, their investment decisions may also be based on

financial reasons. 16

14.Rao. K.V, Why Incentives fail to lure NRIs, Financial Express, January 9, 1989, p.3.

15.Bishwajit Bhattacharyya, Direct Tax Reforms and NRIs, Financiai Express, October 5, 1989, p.4 8 12.

16.Piparaiya. R.K, Expatriate Funds: Rhetorics and Realities-I, Indian Express, February 14, 1983.

On the otherhand, it may be difficult to some of

the NRIs to play a vital role in the development of their

homeland, as they have already decided to settle abroad

permanently.17 But there are quite a number of them who are

uncertain whether they would like to make the foreign

country their permanent home. Many NRIs have a distant

vision or hope of returning to their homeland someday to

stay permanently. There are others who plan to return to

India on retiring from service with very comfortable foreign

pension plans la

The GO1 has all along been following liberal

policies for the promotion of NRI investment, offering many

facilities for NRI investment in India. Realizing the

importance of and the imperative need for NRI funds, India

today provides several more incentives and concessions.

These are also available to overseas corporate bodies

(OCBs), companies, partnership firms, trusts, societies and

other corporate bodies owned to the extent of at least 60

per cent by NRIs or persons of Indian origin.

In 1979, the Ministry of Finance appointed a

working group to study the trends in the flow of inward

17.Krishna Moorthy. R, Investment and Tax Planning for the NRIs - ( I ) , Fortune India (Monthly), December, 1989, Vol.111, No.4, p.24 8 25.

18.Dhawan. O.P, Non-resident Indian Investment Facilities, (1985), 4th Ed., Standard Booksellers, Daribar Kalan, Delhi.

remittances, and suggest ways and means of facilitating the

deployment in India of the savings of Indians abroadJ9 Of

late, the GO1 has no doubt provided more facilities and

fiscal incentives to NRIs as compared to what were available

in earlier years.

The present study seeks to analyse objectively the

various facilities, incentives and policies in this

direction. It also aims to study the trend and progress of

NRI investments in various schemes, the general awareness of

the facilities and concessions, and investment patterns of

NRIs, and to offer recommendations to woo more funds from

NRIs through various channels.

Statement of the Problem

In the context of the search for resources for

public as well as private sector investment, and in view of

deteriorating foreign exchange situation and mounting trade

deficits, remittances from NRIs constitute an important

source of foreign exchange to supplement the domestic

resources.

NRIs, by their industry and dedication, have

contributed to the prosperity of the countries which they

19.NRI Investment in India: Changes since December 1985, (1988), IIC Publications, New Delhi.

have chosen as their second homes, while keeping strong

links with the country of their origin. They have numerous

problems in investing their funds in India. To mention a

few, they are expected to have basic knowledge of the fiscal

laws of India. It is better if they are aware of the

various facilities, incentives and concessions that are

being provided by the G O 1 to attract their investment.

Ignorance may generate baseless apprehensions, and in the

case of NRIs, doubts and suspicions caused by lack of

knowledge of the Indian laws would affect their remittances

and investments. 20

Due to lack of sufficient knowledge about the

investment facilities, moSt of the NHIs have no idea as to

what they c.ln do on their return, and therefore, they

accumulate all their savings abroad and bring the entire

money home at the time of their return. Their savings

abroad on an average, range from Rs.3 lakhs to Rs.6 lakhs

over a period of 4 to 6 years.

It is further noticed that several NRIs on their

return exhaust all their savings in a short period (sa.y

within 5 years) and are left with no money as they have no

ready employment. They spend money on marriages, land,

construction of houses, etc. Since the government agency

20.Iuvesting in India: A Guide to Entrepreneurs, (1988), IIC Publications, New Delhi, 11.17.

does not render effective assistance, their plans do not

materialize as they desire."

Although several facilities, tax-incentives,

concessions, and liberalisation in' the procedures are

available, there are still some cumbersome procedures, rules

and regulations for all investments including bank

deposit^.'^ As this information is voluminous, varied, and

is not very often readily available, NRIs find themselves in

an unhappy situation. As a result NRIs may not gain from

the special benefits and facilities which they could have

availed themselves of had they known about them; they may

even face the embarrassment of the contravention of rules

and regulations.

Recently, the GO1 has introduced a host of

innovative schemes in order to attract the NRI investments

in India. In spite of the efforts taken, it has not

achieved much, as it was expected in terms of flow of NRI

funds in the form of bank deposits, direct investments, and

portfolio investment^.^^ Further, some of the NRIs are

2l.Rajendran. S, Taxation of NRIs, The Hindu (Daily), April 5 , 1990, p.9.

22.Radhesyam Purohit, Investment Climate in India is Positive, Commerce (Weekly), July 25-31, 1987, 78th Year of Public~tion, p . 3 0 .

23.Sharma. J.V.M, Investment Allowances, Economic Political Weekl~ (A Sameksha Trust Publication), October 22, 1988, pp.2235-2238.

reluctant to set up industries in India, and the reasons

attributed to this unfavourable climate may be traced back

to the fact mentioned above. A severe criticism has, on the

other hand, been levelled against the GO1 that the 'undue

and unwarranted' favour shown to NRIs has not borne any

fruits.

Significance of the Study

Indian economy is undergoing a significant

structural change. There is a definite need to assess how

more and more enterprises in India through NRI funds can be

encouraged, and how the investments can be channelised on a

long-term or permanent basis. 24

In order to facilitate mobilisation of savings of

NRI investment in India, a number of initlatives were taken

during the last decade, in addition to providing several

incentives to NHIs. Further, a number of concessions are

also available to those who are desirous of setting up

industrial units in India, either independently or in

collaboration with resident Indians. In the same way, the

GO1 adopts a liberalised policy on the NRI investment in

corporate securities also.

24.Muthuraman. P.R, Implications of NRI Interest Rate at, Financial Express, September 14, 1985, p.4.

One can expect that such a liberalized investment

climate should reflect a positive response to the NRI

investments in India. The various incentives and

concessions offered by the GO1 should also have created a

favourable climate to NRIs.

However, it is generally felt that such a large

dose of liberalization measures, procedures, tax-benefits

and concessions has not made the expected significant

mark.25 Instead, there is a slowing down of interest on the

part of NRIs in remitting their hard-earned savings to their

homeland. Hence it is attempted in this study to find out

the reasons for this state of affairs.

Scope of the Study

The role of NRIs in the industrial and economic

development of the country is gaining importance day-by-day,

and the GO1 is continuously taking serious efforts towards

liberalising the procedures and widening the scope of

investment opportunities .26

An attempt has been made to study as well the

trend and progress of NRI investments in India in various

25.Shabbir. M.S, NRI Investment in Industries - 11, NRI Investment Opportunities, 1-15 May, 1990, p.7.

26.Sandesh, NRI Investment in Gujarat, India S~zeag (Fornightly), September 18, 1989, p.18.

fields. The scope of the study is limited to thr rxistin~

investment schemes of direct and portfolio investment, bank

deposits and other investment opportunities available to

NRIs. It also discusses the incentives and concessions that

are being made available to NRIs, and the special role of

NRIs in increasing the foreign exchange earnings; it traces

out the evolution of NRI investment policy, and

amplification of non-residential status under Exchange

Control and Income Tax Regulations.

Further, it is intended to examine how far the

NRIs are aware of the situation to avail themselves of the

opportunities and benefits presently available to them. An

attempt is also made to analyse the investment pattern of

NRIs, and the impact of the incentives and concessions on

the NRI investments.

Review of Literature

The accumulation of scientific knowledge is a slow

and gradual process, in which an investigator builds on the

works of the past, and his findings serve as a starting

point for the future. The more links that can be

established between a given study and other studies or a

body of theory, the greater the contribution. A review of

the existing literature on NRI investment and their status

bears that the GO1 has been endeavouring to popularise this

14

scclur. It appcurs, Ilowevcr, LhnL IIU suet1 sysLcmaLic

research work has been done in this field.

Though there is abundant literature of a general

type on the investment opportunities for NRIs and procedures

in India, few books have been written in this area. On the

other hand, the GO1 has, from time to time, set up a number

of committees, study teams, and has organised conferences,

and workshops to examine the different aspects and problems

of NIIIs.

Since the subject of the research area is new and

of current interest, no systematic and formal study of the

NRI investments in India has been attempted before.

However, in this field, some experts have attempted to

contribute some inferences relating to NRI investments in

India.

Mohammed ~ a q u e ? ~ from the Economic Forum for

Indian Expatriates, Jeddha, conducted in 1988 a survey to

assess the savings of over ten lakhs NRIs who were working

in the Gulf countries. According to the study, cash

amounting to Rs.20,000 million was lying idle because the

state and the central Governments have neglected to

channelise those resources into suitable schemes. Around

half of the amount belongs to the four lakhs NRIs working in

the Saudi Arabia.

27.NRI Funds, NRI Investment Opportunities, February 7, 1990, p . 6 .

The study also reveals that 40 per cent of the

NRIs from Soudi Arabia could invest amounts upto Rs.50,000,

23 per cent upto Rs.25,000, 17 per cent up to Rs.1 lakh, and

just 9.2 per cent above Rs.1 lakh in any investment schemes

in India.

Mr.Baquer also made several suggestions such as

the following to encourage NRI investments in self

employment as well as in major industrial projects: creation

of mutual funds for those returning from West Asia for

investing their savings, granting permission to promote

cooperative rural banks to support schemes promoted by NRIs,

duty-free import of equipments and tools, and preparation of

schemes suitable for skilled and semi-skilled workers.

Incidentally, skilled and semi-skilled workers constitute

about 72 per cent of the 11 lakh NRIs in the Gulf countries.

He has also suggested that 25 per cent of the

seats should be reserved for NRIs who desire to join the

National Institute of Small Industry Extension Training

(NISIET), and the GO1 should offer innovative incentives

such as reduction of customs tariff on a selective basis. .

s.c.~o~al~' who conducted a study of the share

structure of 100 major private companies said that their

control can go into the hands of NRIs only with the help of

28.'NRI Investment Sops Pragmatic', Financial Express, May 2, 1983, p . 3 .

the W I , which has a sizeable share holding in each of them.

And also he noted that individual families or business

houses at that time managing various companies were doing so

"by courtesy of the Government. "

~ . ~ n b a l a h a n , ~ ~ 8 after making a detailed progress

report on FCNR scheme, in the article entitled "FCNR

deposits, do we need them now?" said that the "FCNR scheme

is prone to misuse by unscrupulous elements abroad". As all

the FCNR deposits would be taken away from the country after

maturity, "This would mean that FCNH deposits constitute

the real foreign debt of the country to be serviced at a

much higher cost. We are not as hard-pressed for foreign

exchange resources now ns we were, when we inlroduced the

FCNR scheme. It was time to Reserve Bank of India (RBI) and

the G9I to take a second look at this scheme and scrap it."

The then Maharashtra Chief Minister, Mr.Sharad

~ownr,30 when he concluded a tour of the UK nnd thc US in

1988 to woo the NRIs to set up industries in the state, said

thnt he found nn overwhelming rcsponsc from NIiI inveslors.

He also said that the NRIs felt that there was a good

industrial climate in India, following the sanction of the

29.NRI Investmenr Boost, Financial Express, April 25, 1983, p . 8 .

30.Centre, States Keen on Attracting NRI Funds, Indian Express, ~ u l y 19, 1989, p.7.

Pepsico project, and the delicensing of a number of

industries.

A study31 was conducted in cooperation with the

Rajasthan State Industrial Development and Investment

Corporation (RIICO) on NRIs in the State of Rajasthan in

1988. This would be the case for all the states and the

country as a whole. The study was based on NRER accounts,

and on a discussion with relatives of NRIs, bankers,

district officials, and the non-resident himself outside

India.

~andesh?Z in his article (1989), mentioned that

NRIs from the USA have Set up as many as 111 industrial

units in Cujnrat, which accounts for 50 per cent of the

total NRI investment in the state. Those returning from the

UK account for 20 per cent of the NRI investments, and the

remaining 30 per cent investments are by NRls in other

countries.

Indian Investment Centre ( I I C ) ~ ~ has also

undertaken some studies on its own or through outside

31.Government to shift focus on NRIs, Indian Express, September 19, 1990, p.4.

32.Patel. 1.13, NRI Investment Sops: Treat Companies and Persons Separately, The Economic Times (Daily), August 27, 1989, p.6.

33.Viswanathan. T.C, (The Economic Times Research Bureau), Non-resident Investment: TV Parts, Video Cassettes Preferred, The Economic Times, June 17, 1989.

agencies. One such study was to find out the status of the

NRI project, i.e., whether they were implemented, and if

not, the reasons for non-implementation etc. Letters were

written to NRIs to keep the IIC informed of the status of

their projects. Assistance of the State Governments was

also obtained in this connection.

A special study34 was undertaken by the IIC on the

status of the approved NRI applications for import of

printing machinery with particular reference to units

proposed to he set up in Delhi. The staff of the IIC were

asked to make personal visits to the addresses indicated in

the applications. The study reveals that out of 110

approvals granted, only 11 have been implemented. 38 are

under implementation, and in 58 cases there was no response

or information.

According to the Economic Survey35 of the GO1

(1988), more than 75 per cent of the NHI deposits is of

short-terms-about six months to one year; only a small

portion of these deposits is in the two or three years

maturity slot.

34.Ruchika, NRI's Role in Indian Economy, (World Trade Centre), The Economic Times, November 17, 1988, pp.2-3.

35.Fresh Incentives to NRIs, The Hindu, June 27, 1990, p.9.

Accordtnp, to a study conri~~rtcd nn tllr hnlnnrr or

payments statistics division, RBI, it is found that since

the introduction of the FCNR deposit account scheme in 1979,

remittances worth Rs.284.58 crores came in through 84,471

accounts. The study after reviewing the working of the FCNR

scheme upto the end of 1981, pointed out that nearly 82 per

cent of the deposited amount was in US dollars, and the

remaining in Pound sterling. Fifty eight per cent of the

Rs.232.25 crores came in through about 6,500 NRI dollar

accounts, and 53 per cent of the Rs.52.33 crores came in

through about 1345 NRI pound sterling account. Nearly 90

per cent of the pound sterling accounts opened upto the end

of 1981 were for amounts of less than f 3,000 each, and 79

per cent of the dollar accounts were for less than $ 5,000

each.

More than one third of the number of accounts

opened in the first 14 months' of the scheme was of 61

months, duration in respect of both the currencies. The

study showed that the share of such accounts in the total

deposits was 38 per cent in the case of pound sterling

accounts, and 49 per cent in dollar accounts. The

reduction in the interest rate and period of deposits in

1978 meant a fall in the proportion of the number of

36.Scrap NRI Investment Scheme: PHD Chamber, Financial Express, January 6, 1986, p.4.

accounts and the corrospondil~g I L ~ ~ U I I L R lor lor~g-Lcrn~

deposits.

Removal of the restriction on the period of

maturity in June 1979 followed by upmrd revisions in the

interest rates did mark a rise in the flow of funds from

NRIs, but even at the end of 1981 the flow was at a slower

pace than the one witnessed during the emergency era.

The recent liberalisation of NRI investment rules

has opened up a vast opportunity for NRI investment in

India. A recent study, "Investing in India" by India

International Incorporation, n Wushinton-based trade

consulting firm, in collaboration with US State Department

and the US Overseas Private Investment Corporation (OPIC),

reported that 34 Indo-US collaborations averaged 20.3 per

cent annual profit after tax during the period 1976-81.

The major contributory factors to this success, as

enumerated in this study, are the availability of cheap

labour and the vast internal market that is offered by

India. The skilled labour in India has to be paid 37 cents

and unskilled labour 25 cents per hour as against the

average of $1.18 a hour in Singapore, $1.33 in Taiwan, $1.39

in Hong Kong and $1.04 in South Korea.

Also the political stability and the vast pool of

technical manpower attracted, in no small measure, NRI

attention to India for investment.

Operatiom1 Definitions and Concepts

For the purpose of qualify in^ and the availing of

the facilities, tax-benefits and concessions, an NRI is

defined37 as follows:

(i) Definition of NRI according to Foreign Exchange Regulation Act, 1973 (PER.4)

An NRI is a person satisfying any one of the

following criteria:

a. An Indian Citizen who stays abroad for employment, or

for carrying business, or vocation outside India, or

for any other purpose, for an indefinite period.

b. An Indian citizen who proceeds abroad for higher

studies and takes up a job on completion of his

studies.

c. A Government servant who is posted abroad on duty with

the Indian Mission and similar agencies set up abroad

by the GOI, and those who have been deputed abroad on

assignments with foreign Government or Regional/

International agencies like WHO, ESCAP, etc.

37.Facilities for Investment kNon-resident Indians (July ' 8 5 ) , IIC publications, New Delhi.

d. An official of a public sector undertaking or an

autonomous organisation deputed abroad on temporary

assignment, or posted to its branches or offices

abroad.

(ii) Definition of 'Indian Origin'

A person shall be aeemed to be of Indian origin if

a. He, at any time, held an Indian Passport; or

b. He or either of his parents or any of his grand parents

was an Indian and a permanent resident of undivided

India at any time.

c. A wife of a citizen of India, or of a person of Indian

origin shall also be deemed to be of Indian origin even

though she may be of non-Indian origin. (However,

Pakistani or Bangladesh nationals of Indian origin can

avail of these facilities only after obtaining prior

permission of the RBI).

d, Indian who permanently reside outside India and acquire

foreign citizenship, or the descendants of an Indian

who migrated out of India, are also considered persons

of Indian origin.

23

(iii) Non-residential Status under Income Tax Act (ITA) 1961

A non-resident is defined under chapter XII-A of

the ITA as "an individual who is either a citizen of India

or a person of Indian origin but who is not resident in

India.'' In other words, a non-resident is a person who is

neither a 'resident' nor a 'resident but not ordinarily

resident.'

b. "Resident but not ordinarily Resident" in India

A person who is said to be 'not ordinarily

resident' in India if he is basically a 'resident' in the

year of evaluation and

1. his total stay in India in the last seven years

preceding the year of evaluation was less than 730

days, or

2. he was not 'resident' in 9 out of 10 years preceding

the year of evaluation

c. "Resident and ordinarily Resident" in India

The status of an individual is said to be

"resident and ordinarily resident" in India in a particular

year only

1. if he has been resident in India in 9 out of 10

previous years preceding that year, and

2. during the 7 previous years preceding that year he

has been in India for a total period of 730 days or

more.

(d) "Residents in India"

Under the ITA, an individual is considered to be a

resident in India if he fulfils any of the following

conditions:

1. if he is in India in the relevant year (Apr.1 to

Mar.31) for a period aggregating 182 days or more.

2 , if he is in India for a period aggregating 60 days

or more in the relevant year, and has been in India

for an aggregate period of 365 days or more in the

preceding 4 years.

In the case of an individual, being a citizen of

India

1. Who leaves India in any relevant year for employment

outside India, the limit of 60 days in clause (2)

above shall be taken as 182 days.

2. Who being outside India, comes on a visit to India

in any relevant year, the limit of 60 days in clause

(2) above shall be taken as 90 days.

Thus, Indian citizens who live abroad are

permitted to stay in India upto 89 days in a year without

acquiring the status of a 'resident'. But such Indians who

are not Indian citizens are permitted to stay only upto 59

days in a year without acquring the status of 'resident'.

However, the recent amendment in the ITA allows

NRIs to stay in India in a year for a period upto 150 days,

on a visit to India, without losing the status of 'non-

resident'.

(iv) Amplification of non-residential Status under Exchange Control and Income Tax Regulations

The said definition 1s rather general and there is

a controversial aspect of FERA and ITA regarding the NRI

status. A brief discussion on the NRI status under these

two Acts, viz., FERA and ITA is presented below.

The FERA classifies all persons into two

categories with reference to their residential status: (a)

persons resident in India and (b) persons resident outside

India. But the ITA classifies persons into three categories

with reference to their residential status: (a) resident and

ordinarily resident, (b) resident, but not ordinarily

resident and (c) non-resident.

The term 'Non-Resident Indian' has been defined

for the purpose of chapter XI1 A of ITA containing special

provisions relating to certain income of non-residents.

Accordingly, section 115 C (e) defines NRI to mean an

individual being a citizen of India or a person of Indian

origin who is not a resident. Explanation to section 115

C(e) .states that a person shall be deemed to be of Indian

origin if he or either of his parents or any of his

grandparents was born in undivided India.

As regards the determination of the residential

status of a person, the provisions of FERA are quite

distinct from those of the ITA. Hesidential status under ITA

depends upon the period of stay in India in the previous

year, and could be ascertained with certainty in every case;

that under FEHA depends on the intention of the person in

regard to stay in or out of India, irrespective of the

period of stay, and thus could vary from time to time

depending upon the circumstances of the case.

The term Non-Resident individuals of Indian

nationality or origininon-residents of Indian

nationality/origin has been used in the Exchange Control

Manual (ECM) and in circulars issued by the RBI for

eligibility for availing of facilities for investment in

India.

Thus,.it is clear that a person who is a resident

under FERA could be a non-resident under ITA and vice-versa.

A great deal of confusion arises because of the ignorance or

inability of people to understand and appreciate this

distinction.

It would be necessary to refer to the residential

Status of a person under FERA as well as under ITA and also

in the respective NRI schemes in order to ascertain whether

and to what extent the facilities and incentives could be

obtained by an NRI on the facts and circumstances of each

case. This is so because even within the provisions of the

ITA, in some exemption provisions, it has been stated that

for the purpose of such provisions the residential status

under FERA and not that under ITA would be the basis upon

which the benefits of exemption would be available Section

lO(4) (ii) .

Also Foreign born wives of Indian citizens or

persons of Indian origin are deemed to be of Indian origin

for various investment schemes; but they are not considered

NRIs for the purpose of the 'Special Provisions' for NRIs

under ITA .

For the purpose of investment in different

schemes, reference to NRI would mean NRI nationality, or

origin would also include Indians who have made their

permanent home outside India and acquired foreign

citizenship, as.well as the descendants of Indians who have

migrated earlier from undivided India and acquired foreign

citizenship.

It should also be understood that unless a person

is resident outside India, he is not allowed to have foreign

exchange assets (except with the permission of the RBI)

whether in the form of Foreign Currency Non-Resident Account

(FCNR) , or Non-Resldent (External) Rupee Account (NRER),

or other assets abroad; thus, the persons availing

themselves of investment facllities in India under the

status of NRI must be resident ouLside Indin' in Lcrlns of

FERA regardless of whether they are resident and ordinarily

resident', or resident but not ordinarily resident', or

non-resident' under ITA.

(iv) Overseas Corporate Bodies

Overseas Corporate ~ o d i e s ~ ~ are predominantly

owned by individuals of Indian nationality or origin

resident outside India. It also includes overseas

companies, partnership firms, societies and other corporate

bodies which are owned, directly or indirectly to the extent

of atleast 60 per cent of Indian nationality, or origin

resident outside India as also overseas trust of which

atleast 60 per cent of the beneficial interest is

irrevocably held by such persons.

38.NRIs oCBs for Investment in India - Procedures, (June, &publications, New Delhi, p.7.

(v) Foreign Exchange Asset

Foreign exchange asset3' means any specified asset

acquired, purchased or subsc~i'led to by the NRIs, in foreign

currency, in accordance with the FERA 1973, and any rules

made thereunder.

(vi) Specified &sets4'

The specified assets are as follows:

a. Shares in an Indian Company

b. Debentures issued by Public Limited Companies

c. Deposits with Indian Public Limited Companies, and

d. Securities of the Central/State Governments.

(vii) Residelrt Colnpany

A company is said to be 'resident' in India in any

previous year, if

a. it is an Indian company; or

b. during previous year, the control and management

of its affairs were situated wholly in India.

39.Nishith M. Desai, Non-residents Investments Incentives and Tax Planning, -Special Reference to Tax Heavens - (1986), Taxmann Publications (P) Ltd., Delhi.

40.Pikale. S.V, and Pikale. G.S, Non-residents - Taxation and Investment in India, Jaic0 Book publishing= - Bombay.

Wearch Questions

The present study is proposed to seek answers to

the following questions.

i) Who is an NRI?

ii) What are the major reasons that influence them to go

abroad?

iii) Where do they live and what do they do abroad?

iv) What are the investment facilities/schemes available

to them in India?

v) What are the incentives and concessions available to

them in India?

vi) How far are they aware of the investment facilities,

incentives and concessions, and to what extcrlt are

their responses toward these schemes successiul'l

vii) What are the important factors that influence them to

ihvest in a pnrticulnr schemc?

viii) What are the major reasons for not having succeeded

in its objectives of some of the schemes?

ix) What is the scope of getting funds from NRIs?

x ) What is the significance of NRI funds in the India's

development?

xi) What are the problems faced by NRIs in investing

funds in India?

xii) What will be the trend of fund flow of investments

from NRIs in the coming years?

Objectives

With the aim of answering the above questions the

objectives have becn frnmed. Thc spccific objrctivcs or thc

study are as follows:

i) To study thc various investment opportunities,

incentives and concessions available to NRIs, and to

trace the evolution of the NRI Investment policy in

India.

ii) To study the trend and progress of NRI investments in

various fields, such as, Bank Deposits, Direct

Investments, and Portfolio Investments.

iii) To examine how far the NRIs are aware of the various

investment opportunities, incentives and concessions

extended to them and to study their response to such

facilities.

i v ) To analyse the investment pattern, and to study the

impact of the various incentives and concessions on the

NRI investments.

v) To suggest various suitable policy measures and

procedural changes needed to make NRI investments more

attractive.

To fulfil the objectives the following hypotheses

have been framed:

HI. NRIs' awareness and availing of incentives and

concessions depend significantly on their level of

education, occupation, and income.

HZ. NRIs are aware of and avail themselves of the

incentives and concessions irrespective of their

country of residence.

H3. NRIs, irrespective of their country of residence and

religion, prefer to invest in bank deposits rather than

in corporate securities.

H4. NRIs prefer direct investment to portfolio investment

irrespective of their country of residence, occupation,

and level of income.

H5. The availing of incentives on bank deposits vary

significantly with age, education, occupation, level of

income, and country of residence.

Yethodology

The study has been based on a descriptive and

analytical method, and it is a blend of primary and

secondary data. The secondary data were Collected from the

reports and records of various Government Institutions and

Organisations like the IIC, RBI, Central and State

Government Nodal Agencics for N I < I s , and vnrious Indu6Lrlal

Investment Corporations at the centre and State levels.

To study the general awareness and the availing of

the facilities, incentives and concessions by NRIs, the

required details were collected directly from the NRIs using

an interview schedule. For this purpose a detailed schedule

was prepared covering most of the aspects of the investment

opportunities, facilities, incentives and concessions

presently available to NRIs in India. The purpose is also

to study the investment pattern of NRIs and measuring the

impact of the incentives and concessions on the NRI

investments.

The interview schedule was administered on the

selected sample respondents after having tested it for

obtaining more realistic first-hand information from NRIs.

Details of information so collected were also analysed using

appropriate statistical tools.

Selection of Sample

The sample design of the study depends to a large

extent on the nature of the problem of investigation. In

this study the population consists of NRI investors in

corporate securities and NRI depositors in bank accounts.

On the basis of the available information with the

RBI, it is estimated that about 700 NRIs spread all over

Tamil Nadu and the Union Territory (UT) of Pondicherry are

used to visit India every month either on vacation or for

business purposes. It is learnt, officially, that during

the month of January, 199p, 660 NRIs have visited Tamil Nadu

and the UT of Pondicherry. It was decided to contact a

sample of 20 per cent. Accordingly, 132 NRI investors were

selected.

On referring the information with the Madras

Grindlays centre and the Madras stock Exchangc Lhot of the

300 participants of the seminar conducted by them in

January, 1990, about It? per cent each are from the important

towns of Tamil Nadu (Trichy, Madurai and Coimbatore) and the

Union Territory (UT) of Pondicherry-one of the enclaves of

the UT of Pondicherry, and about 28 per cent of them are

from the city of Madras.

On this basis, 132 respondents were contacted

using convenience 'sampling method, by selecting 25

respondents from each centre, and 32 from Madras in order to

give due representation to the various parts of Tamil Nadu

and Pondicherry.

Period of the Study

As it is stated in the methodology, in this study,

both primary and secondary data were collected and, used for

analysis. The secondary data for the study were considered

for a period of 10 years ranging from 1979-80 to 1988-89.

The data collected were analysed with the help of the

computer also.

Statistical T w l s

The statistical tools used in this study include

percentages, mean scores, standard deviations, co-efficient

of variations, growth rates, linear t.rend, simple and

multiple correlation, simple and multiple regression, chi-

square test, etc.

a) Percentages

For the purpose of bringing out the data for easy

analysis, percentages are computed and taken into account

for drawing implications.

b) Standard I k v i a l l o n ~

For evaluating the mean values, their variability

and dependability, the standard deviation is extensively

used. Moreover, to compute the variation .of the mean, the

co-efficient of variation is used.

c) Growth Rates

Simple linear trend with time as the independent

variable is used to explain the growth rate.

d) Simple and Multiple Correlation

To study the relationship between two and more

variables, simple and multiple correlations have been used.

e) Simple and Multiple Regression

Simple and multiple regression between two and

more variables has been used in appropriate cases to

establish the relationship between the variables under

investigation. In all the cases, It' values and 'R'' values

are also computed.

f) Chi-Squnre Test

In this study, the Chi-square test has been used

extensively for investigating the association between the

different personal variables and investment made by the

NRIS.

Limitations of the Study

Due to constraints on time, it has not been

possible to study in detail the elaborate tax-aspects of

NRIs, as also the procedural aspects for availing the

respective facilities and incentives and for the subsequent

transfer, sale or exchange of such investments in India.

Since no formal study has been made, in this area, regarding

the NRIs, it has not been possible to go through more number

of earlier studies.

As the study is the very first one in this field

of current interest, the researcher has faced a lot of

difficulties and problems in obtaining the required data and

information for completing successfully the study in the

scheduled time.

Chapter Frame

To present the findings effectively, the thesis

has been divided into eight chapters, giving equal weightage

and importance to each.

In the first chapter an attempt has been made to

introduce the subject of the research study. It includes

the problems under study,, significance, scope, objectives,

hypotheses, methodology, selection of sample and review of

literature. The method of data collcction, analysis,

statistical tools used, period and limitations of the study,

operational definitions and concepts used in this study are

also presented in this chapter.

The purpose of the second chapter is to give a

clear picture of the present NRI investment opportunities,

incentives and concessions available to NRIs in India. It

also aims to review, trace the evolution and overview the

liberalisation policy of the G O 1 on the N R I investments in

India.

The progress of N R I investment in bnnk nccount

deposits has been analysed in depth in the third chapter.

This chapter deals with the analysis of NRER and F C N H

deposits in respect of exchange rate variation, interest

rate changes, and the liberalisation policy of the GO1

regarding NRI bank account deposits.

The fourth chapter deals with the NRI

participation in the establishment and growth of industries

in India. State-wise, region-wise, and industry-wise

contribution of NRI investment in industries has been

analysed in depth.

The NRI share of investment in capital stock

(shares 8 debentures), investment in company deposits and

units of UTI have been analysed in the fifth chapter. This

chapter also centres around analyses, scheme-wise and

source-wise NRI investment in units of U T I , capital issues

to NRIs in different forms, etc.

The sixth chapter deals with the analysis of the

awareness and the availing of the facilities, incentives and

concessions by NRIs. In the seventh chapter an attempt has

been made to analyse the, investment pattern and impact of

the tax-benefits and the concessions on the investments.

In the last chapter the summary of the findings of

the study, and suggestions are presented.