India Inc's $27 Billion Foreign Investment Bets Under RBI Scrutiny Amid Forex Conservation Efforts

RBI Scrutinizes Overseas Investments by Indian Companies

Amid the government's push to conserve foreign exchange, the Reserve Bank of India (RBI) has initiated a closer examination of overseas direct investments (ODIs) made by Indian companies. The RBI's foreign exchange department has reportedly sought explanations from several companies on the intent behind their overseas investments, the governance structures of foreign entities, and their long-term business plans.

The scrutiny comes at a time when outbound investments by India Inc have surged sharply. Total annual ODI outflows, including equity, loans, and invoked guarantees, rose from $14.5 billion in FY24 to $27 billion in FY26. Destinations such as Singapore, the United States, and the United Arab Emirates have emerged as key hubs for these investments.

Under current rules, an Indian company or Limited Liability Partnership (LLP) can remit up to four times its net worth for overseas direct investment, provided the activity qualifies as a bona fide business. RBI approval is typically required once annual ODI crosses $1 billion. Unlike the Liberalised Remittance Scheme, which restricts individuals to investing tax-paid funds abroad, ODI rules also permit leveraged investments. For instance, a company with a net worth of Rs 100 crore can borrow Rs 300 crore and make an overseas investment of Rs 400 crore.

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The RBI is seeking details on jurisdiction choices, business performance, economic outcomes, risk management frameworks, future capital commitments, and the use of intermediate holding companies or subsidiaries. This scrutiny is aimed at ensuring that ODIs are deployed in genuine business operations and not merely as a structuring exercise.

The RBI's queries have also raised questions about the use of tax-efficient jurisdictions such as Singapore or Dubai for ODIs. Companies are being asked to provide details on the deployment of profits, dividends, or fees from ODIs in these jurisdictions. Banks are also seeking explanations in cases involving mergers, acquisitions, or where overseas subsidiaries hold financial or real estate assets. In some cases, the RBI is even questioning why Indian parents chose equity investments over loans.