Population: 1.4 billion

Wealth in domestic bank deposits: 2,258 billion USD (June 2023)

Offshore expatriated wealth: 12.3 billion USD

Main offshore banking locations: Dubai, Singapore, Netherlands, Mauritius

Number of individual brokerage accounts: 116 million (2023)

Crypto adoption (% of population): 103 million (7.2%)

TLDR

India has historically maintained strict foreign exchange controls and restrictions on foreign investment. However, regulations have been progressively liberalized over the past decade to facilitate greater capital flows. The liberalization aims to attract foreign investment to boost economic growth. Cryptocurrencies remain unregulated, though the government plans to introduce a taxation framework and legislation in 2023. Securities market regulations have defined different categories of qualified investors to facilitate wider participation.

Exchange Controls

The Foreign Exchange Management Act (FEMA) regulates all foreign exchange transactions in India. It is overseen by the Reserve Bank of India (RBI). Recent years have seen gradual liberalization of regulations to facilitate capital inflows and outflows.

The new 2022 Overseas Investment Rules consolidate the exemptions for Indian residents to acquire shares abroad, like under employee stock option plans (ESOPs) of foreign companies. The revised rules aim to boost foreign investment. However, they also impose increased compliance requirements. Indian entities must now submit mandatory semi-annual reports to the RBI on ESOP-related overseas investments and remittances.

The Liberalized Remittance Scheme (LRS) allows resident individuals to remit up to $250,000 per financial year for approved purposes like overseas investments in securities. But the 2022 Rules excluded applicability of LRS for ESOP-related remittances.

The changes increase authorized dealer banks’ role in managing cross-border payments and repatriations involving Indian residents. The relaxed regulations are expected to facilitate foreign investment in Indian infrastructure and natural resources.

Qualified Investors

SEBI regulations define investor categories like Retail Individual Investors (RII) and Non-Institutional Investors (NII) for IPO participation based on application amounts.

RIIs apply for under ₹200,000 ($2,500) and get minimum allotment of one lot. NIIs apply for over ₹200,000 ($2,500) without assured minimum allotment.

NIIs have sub-categories of small (₹200,000-₹1,000,000 or $2,500-$12,500) and big (over ₹1,000,000 or $12,500). Quotas exist for allotment to each sub-category.

Distribution of Foreign Investment Products

The Securities and Exchange Board of India (SEBI) regulates the distribution of foreign investment products. SEBI approval is mandatory for both the product and associated marketing material. Only registered intermediaries like stockbrokers and mutual fund distributors can market the products. All marketing material must meet SEBI’s requirements on accuracy and risk disclosures. Various other regulations like FEMA, IRDA Act and anti-money laundering laws also apply. Foreign issuers must submit applications to SEBI and meet information requirements to obtain approvals.

Cryptocurrency Regulation

The legal status of cryptocurrencies in India remains ambiguous. The central bank RBI has advocated banning private cryptocurrencies, while exploring a central bank digital currency (CBDC).

In 2022, the government introduced a 30% tax on crypto income without expressly legalizing cryptocurrencies. It refers to cryptos as “virtual digital assets” rather than legal tender. Crypto transactions may need to adhere to reporting requirements, KYC protocols, and anti-money laundering safeguards.

There were plans to introduce cryptocurrency regulation bills with strict penalties for violations. However, no recent updates are available on their progress. The uncertainty persists despite stated plans to regulate cryptocurrencies in 2023.