Pension Fund (Foreign Investment) Rules, 2020
As India-China tensions simmer, the finance ministry has proposed limitations on foreign investment in pension funds while explicitly suggesting additional checks on Chinese investment.
The Draft Pension Fund (Foreign Investment) Rules, 2020, stated that government approval will be required for investments from bordering countries “including China”
Foreign investment in pension funds is governed by the Pension Fund Regulatory and Development Authority and is capped at 49% via the automatic route.
The latest proposal is in continuation of earlier restrictions placed by the government on foreign direct investment in companies, targeted at China. However, the earlier notification did not explicitly mention China.
The move comes amid heightened tensions between the Indian and Chinese armies at the Galwan Valley and other points in Ladakh.
According to experts the latest proposal is aimed at preventing hostile investments in a sensitive and socially important financial instrument.
Unlike in Europe or the US, there is no state-sponsored social security in India. Indian pension funds are privately funded and represent a large portion of the social safety net post-retirement for many Indians.
“Pension funds play a vital role in Indian social security framework and therefore such restrictions by the government to regulate foreign investment in such crucial sectors seems to be in long term security of the country,”Shailesh Kumar, partner at Nangia & Co LLP.
Government of India
Ministry of Finance Department of Financial Services
Dated :- 19.06.2020
Department of Financial Services, Ministry of Finance is proposing to frame the Pension Fund (Foreign Investment) Rules 2020. The comments from the public and all concerned are invited on the draft Pension Fund (Foreign Investment) Rules 2020.
Comments/Feedback may be forwarded by email to: pensec-dfs@nic.in / sushma.kindo@nic.in under the subject Pension Fund (FI) Rules 2020 within 30 days. Comments should be given in the following format:
Written comments in the above format may be addressed to:
To,
Ms. Sushma Kindo
Deputy Director (PR) 2nd Floor, Jeevan Deep Building
Sansad Marg New Delhi 110001
Pension Fund (Foreign Investment) Rules, 2020
DRAFT
MINISTRY OF FINANCE
(Department of Financial Services)
NOTIFICATION New Delhi, the 2020
GSR _________ In exercise of the powers conferred by clause () of sub-section 2 of Section 51 of the Pension Fund Regulatory and Development Authority (PFRDA) Act, 2013 (23 of 2013), the Central Government hereby makes the following rules in respect of foreign investment in Indian Pension fund, namely:
1. Short title and commencement-
1. Short title and commencement-
(1) These Rules may be called Pension Fund (Foreign Investment) Rules, 2020.
(2) They shall come into force from the date of their publication in the Official Gazette.
2. Definitions -In these Rules, unless the context otherwise requires:
(a) "Act” means the Pension Fund Regulatory and Development Authority (PFRDA) Act, 2013 (23 of 2013)
(b) "Authority" means the Pension Fund Regulatory and Development Authority (PFRDA) established under sub-section (1) of Section 3 of the Pension Fund Regulatory and Development Authority ( PERDA) Act, 2013 (23 of 2013)
(c) "Equity share capital" shall have the same meaning assigned to it in Section 43 of the Companies Act, 2013 (18 of 2013).
(d) "Foreign Investment" (FI) means and includes investment by a foreign company either by itself or through its subsidiary companies or its nominees or by an individual or by an association of persons whether registered or not under any law of a country outside India and other eligible entities in the equity shares of a Pension fund in India under clause (i) of sub regulation (1) of regulation 5 of the Foreign Exchange Management (Transfer or issue of Security by a Person Resident Outside India) Regulations, 2000 (hereinafter referred to as FEMA Regulations 2000).
Provided that for the purpose of these rules, Foreign Investment shall include investment by Foreign Venture Capital Investment (FVCI) as permissible under Regulation 6 of FEMA Regulations 2000;
(e) "Foreign Investors" for the purpose of these rules means foreign company either by itself or through its subsidiary companies or its nominees or by an individual or by an association of persons whether registered or not under any law of a country outside India investing in the equity share of a Pension fund in India, as permitted to do so through the Foreign Investment and Foreign Portfolio Investment windows under FEMA Regulations 2000 as described in these Rules;
(f) "Foreign Portfolio Investment" means and includes investments in the equity share of a Pension fund in India by Foreign Institutional Investors, Foreign Portfolio Investors, Non-Resident Indian, Qualified Foreign Investors and other eligible portfolio investor entities or persons in accordance with provisions contained in sub-regulations (2), (2A), (3) and (8) of Regulation 5 of FEMA Regulations, 2000.
(g) "Foreign Company" shall have the meaning assigned to it in clause (23A) of section 2 of the Income Tax Act 1961.
(h) "Indian Company" shall have the same meaning assigned to the term "Company" in sub-section (20) of Section 2 of the Companies Act, 2013 (18 of 2013.) (i) "Indian Control of a pension fund means Control of a Pension fund in India by resident Indian citizens or Indian companies, which are owned and controlled by resident Indian citizens.
(j) "Indian Ownership" of a Pension fund in India means more than 50 per cent of the equity capital in it is beneficially owned by resident Indian citizens or Indian companies, which are owned and controlled by resident Indian citizens provided that the manner of computation of foreign holding of such Indian promoter or Indian Investor Company shall be in accordance with the relevant Rules and PERDA Regulations/Guidelines (in consultation with the Department of Financial Services).
(k) "Non Resident Entities" shall have the meaning assigned to the term "Person resident outside India" in clause (w) of Section 2 of Foreign Exchange Management Act, 1999 (42 of 1999);
(1) "Pension Fund" shall have the same meaning assigned to it in clause (1) of sub section (1) of Section 2 of the Pension Fund Regulatory and Development Authority ( PFRDA) Act, 2013 (23 of 2013);
(m) "Public Financial Institution" shall have the same meaning assigned to it in sub section (72) of Section 2 of the Companies Act, 2013 (18 of 2013);
(n) "Resident Indian Investment" shall have the same meaning assigned to it in the FDI Policy issued from time to time;
(0) "Sponsor" shall have the same meaning assigned to it in the Regulations issued by PERDA.
(p) "Total Foreign Investment" in a Pension fund in India would be the sum total of direct and indirect foreign investment by Foreign Investors in such pension fund, calculated in accordance with the PFRDA Regulations read with the Consolidated FDI policy of Government of India. (q) All other words and expressions used in these rules but not defined, and defined in the Act and Rules, Regulations made there under shall have the same meanings respectively assigned to them.
4. Pension Fund in India shall ensure that its ownership and control shall remain at all times in the hands of resident Indian entities referred to in clauses (i) and (j) of Rule
5. Foreign Investment proposals which take the total Foreign Investment in the Pension fund up to the cap of 49 per cent., shall be allowed through automatic route.
6. Foreign Portfolio Investment in a Pension fund in India shall be governed by the provisions contained in sub-regulations (2), (2A), (3) and (8) of regulations 5 of FEMA Regulations, 2000 and provisions of the Securities Exchange Board of India (Foreign Portfolio Investors) Regulations.
7. Any increase of foreign investment of a Pension fund in India shall be in accordance with the pricing guidelines specified by Reserve Bank of India under the FEMA Regulations.
8. A Government approval would be required for the investing entity or individual from any of the bordering countries including China. The relevant provisions of FDI Policy issued from time to time would apply in all such cases.
9. Other aspects related to or associated with or flowing from matters related to Foreign Investment in Pension Fund in India, which are not the subject matter of these rules, and fall within the regulatory ambit of the Authority, will be regulated as per regulations to be framed by the Authority, consistent with the relevant statutes and other rules framed there under.
[F. No. 1/2/2013-PR]
Joint Secretary
(2) They shall come into force from the date of their publication in the Official Gazette.
2. Definitions -In these Rules, unless the context otherwise requires:
(a) "Act” means the Pension Fund Regulatory and Development Authority (PFRDA) Act, 2013 (23 of 2013)
(b) "Authority" means the Pension Fund Regulatory and Development Authority (PFRDA) established under sub-section (1) of Section 3 of the Pension Fund Regulatory and Development Authority ( PERDA) Act, 2013 (23 of 2013)
(c) "Equity share capital" shall have the same meaning assigned to it in Section 43 of the Companies Act, 2013 (18 of 2013).
(d) "Foreign Investment" (FI) means and includes investment by a foreign company either by itself or through its subsidiary companies or its nominees or by an individual or by an association of persons whether registered or not under any law of a country outside India and other eligible entities in the equity shares of a Pension fund in India under clause (i) of sub regulation (1) of regulation 5 of the Foreign Exchange Management (Transfer or issue of Security by a Person Resident Outside India) Regulations, 2000 (hereinafter referred to as FEMA Regulations 2000).
Provided that for the purpose of these rules, Foreign Investment shall include investment by Foreign Venture Capital Investment (FVCI) as permissible under Regulation 6 of FEMA Regulations 2000;
(e) "Foreign Investors" for the purpose of these rules means foreign company either by itself or through its subsidiary companies or its nominees or by an individual or by an association of persons whether registered or not under any law of a country outside India investing in the equity share of a Pension fund in India, as permitted to do so through the Foreign Investment and Foreign Portfolio Investment windows under FEMA Regulations 2000 as described in these Rules;
(f) "Foreign Portfolio Investment" means and includes investments in the equity share of a Pension fund in India by Foreign Institutional Investors, Foreign Portfolio Investors, Non-Resident Indian, Qualified Foreign Investors and other eligible portfolio investor entities or persons in accordance with provisions contained in sub-regulations (2), (2A), (3) and (8) of Regulation 5 of FEMA Regulations, 2000.
(g) "Foreign Company" shall have the meaning assigned to it in clause (23A) of section 2 of the Income Tax Act 1961.
(h) "Indian Company" shall have the same meaning assigned to the term "Company" in sub-section (20) of Section 2 of the Companies Act, 2013 (18 of 2013.) (i) "Indian Control of a pension fund means Control of a Pension fund in India by resident Indian citizens or Indian companies, which are owned and controlled by resident Indian citizens.
(j) "Indian Ownership" of a Pension fund in India means more than 50 per cent of the equity capital in it is beneficially owned by resident Indian citizens or Indian companies, which are owned and controlled by resident Indian citizens provided that the manner of computation of foreign holding of such Indian promoter or Indian Investor Company shall be in accordance with the relevant Rules and PERDA Regulations/Guidelines (in consultation with the Department of Financial Services).
(k) "Non Resident Entities" shall have the meaning assigned to the term "Person resident outside India" in clause (w) of Section 2 of Foreign Exchange Management Act, 1999 (42 of 1999);
(1) "Pension Fund" shall have the same meaning assigned to it in clause (1) of sub section (1) of Section 2 of the Pension Fund Regulatory and Development Authority ( PFRDA) Act, 2013 (23 of 2013);
(m) "Public Financial Institution" shall have the same meaning assigned to it in sub section (72) of Section 2 of the Companies Act, 2013 (18 of 2013);
(n) "Resident Indian Investment" shall have the same meaning assigned to it in the FDI Policy issued from time to time;
(0) "Sponsor" shall have the same meaning assigned to it in the Regulations issued by PERDA.
(p) "Total Foreign Investment" in a Pension fund in India would be the sum total of direct and indirect foreign investment by Foreign Investors in such pension fund, calculated in accordance with the PFRDA Regulations read with the Consolidated FDI policy of Government of India. (q) All other words and expressions used in these rules but not defined, and defined in the Act and Rules, Regulations made there under shall have the same meanings respectively assigned to them.
Quantum of Foreign Investment.
3. No Pension fund in India shall allow the aggregate holding by way of total Foreign Investment in its equity share by foreign Investors, including portfolio investors, to exceed forty-nine percent, of the paid up equity capital of such Pension fund.4. Pension Fund in India shall ensure that its ownership and control shall remain at all times in the hands of resident Indian entities referred to in clauses (i) and (j) of Rule
5. Foreign Investment proposals which take the total Foreign Investment in the Pension fund up to the cap of 49 per cent., shall be allowed through automatic route.
6. Foreign Portfolio Investment in a Pension fund in India shall be governed by the provisions contained in sub-regulations (2), (2A), (3) and (8) of regulations 5 of FEMA Regulations, 2000 and provisions of the Securities Exchange Board of India (Foreign Portfolio Investors) Regulations.
7. Any increase of foreign investment of a Pension fund in India shall be in accordance with the pricing guidelines specified by Reserve Bank of India under the FEMA Regulations.
8. A Government approval would be required for the investing entity or individual from any of the bordering countries including China. The relevant provisions of FDI Policy issued from time to time would apply in all such cases.
9. Other aspects related to or associated with or flowing from matters related to Foreign Investment in Pension Fund in India, which are not the subject matter of these rules, and fall within the regulatory ambit of the Authority, will be regulated as per regulations to be framed by the Authority, consistent with the relevant statutes and other rules framed there under.
[F. No. 1/2/2013-PR]
Joint Secretary
Comments