RESERVE BANK OF INDIA
EXCHANGE CONTROL DEPARTMENT
CENTRAL OFFICE
MUMBAI 400 001
To,

All Authorised Dealers in Foreign Exchange

Dear Sir,

Indian Direct Investment in Joint Ventures(JV) Wholly Owned Subsidiaries (WOS) abroad - EEFC Fast Track Window

Attention of authorised dealers is drawn to paragraph 9A.5 of Exchange Control Manual (as amended vide item 29 of A.D.(M.A. Series) Circular No.21 dated 1st July 1998) in terms of which they have been permitted to allow overseas investments by Indian promoter companies from out of Exchange Earners Foreign Currency (EEFC) Accounts. On a review, it has been decided to make certain relaxations in regard to (a) availability of funds in the EEFC accounts of Indian promoter companies and (b) setting up of second generation concerns abroad by JV/WOS initially set up under the EEFC Fast Track Window, as indicated below.
(i) In terms of paragraph 1 of the Guidelines to authorised dealers for approval of such proposals (Annexure II to Chapter 9 of ECM), before approving the proposal authorised dealer has to ensure, inter alia, that the applicant has
adequate balance in his EEFC account to fully cover the proposed investment as projected in the project/feasibility reports enclosed to the application. Henceforth, it will be in order for authorised dealers to approve proposals for overseas investment under the EEFC Fast Track Window even in cases where the balances in the EEFC accounts are not sufficient to fully cover the proposed investment at the time of approval, subject to the following conditions :
(a) On the basis of the foreign exchange earnings track record of the account holder, there will be sufficient accretion to the EEFC account by way of future earnings to fully cover the proposed investment within the projected time-frame for implementation of the project.
(b) The proposal should be such that the Indian promoter company's contribution towards the project cost can be made over a period without affecting the overall viability of the project.
(ii) Under the existing guidelines, overseas JV/WOS has to satisfy certain conditions mentioned in paragraph 8.2 of Annexure I to Chapter 9 of the ECM for setting up of second and subsequent generation companies without prior approval of Reserve Bank. Henceforth, Indian promoters may agree to their overseas JV/WOS to set up second and subsequent generation companies without fulfilling these conditions, provided the first generation company was set up under the EEFC Fast Track Route and setting up of second/subsequent generation company(ies) is intimated to Reserve Bank in the prescribed Annual _Performance Report. It is, however, clarified that where additional investment is made under the EEFC Fast Track Window in an existing JV/WOS approved by Reserve Bank/Government of India, the extant guidelines regarding setting up of second generation company will continue to apply.

2. The necessary amendments to the Exchange Control Manual will be advised separately. Meanwhile, authorised dealers may bring the contents of this circular to their concerned constituents.

3. The directions contained in this circular have been issued under Section 73(3) of the Foreign Exchange Regulation Act, 1973 (46 of 1973) and any contravention or non-observance thereof is subject to the penalties prescribed under the Act.

Yours faithfully,
KHIZER AHMED
Chief General Manager