Team Blitz India
THE Financial Action Task Force (FATF), the inter-government body which leads the action to combat illegal and suspicious fund flows, removed the United Arab Emirates from the category of ‘jurisdictions under increased monitoring’, better known as the grey list.
The country was put on the grey list in March 2022. The recent development would make it easier for UAE investors and lenders to bet on businesses in India as the regulatory dos and don’ts attached to inflows from FATF grey list countries would no longer be applicable.
Now, UAE entities can hold significant equity stakes in finance companies in India, an investment that is capped at 20 per cent for foreign direct investment in such outfits by the central bank.
FDI inflow source
The UAE has increasingly become a significant source of FDI inflows in India and the move will only further strengthen such flows due to reduced costs of bank KYCs, funding, greater overall confidence in the jurisdiction with Indian entities and increased inflows in sectors like NBFCs.
Till date, UAE-based investors could not have exercised more than 20 per cent of the voting rights, or in other words significant influence, due to RBI’s restrictions applicable on FATF non-compliant jurisdictions. There are 198 FPIs from the UAE trading on Indian stock exchanges. In 2022-23, FDI from the UAE tripled to $3.35 billion, making it the fourth largest investor after Singapore, Mauritius, and the US.
With several bilateral treaties being signed between India and UAE, FATF’s removal of the UAE from the grey list will further bolster the UAE-India investment corridor and the UAE can potentially even pose more competition to the GIFT City as a jurisdiction targeting inbound investments in India.
Gain for startups
With the UAE out of the grey list, one of the beneficiaries would be the startup industry. Government recognised start-ups facing funding winter can now make use of the special ECB (external commercial borrowing) framework for raising ‘venture debt’ from UAE lenders.
This framework carries increased flexibility in terms of early repayment period, removal of restrictions like interest cap, debt-equity ratio beyond a certain limit. Also, under this framework recognised startups are given latitude on the end-use of foreign loans and are permitted to borrow against intangible assets.
