Government of India Volume I: Analysis and Recommendations

CAPITAL CONTROLS
Table of Recommendations 8.2 Rule and regulation making process
While making rules on inbound flows, the Central Government must first consult the RBI and then publish draft rules.
The draft rules must be released for public consultation along with an analysis of the costs and benefits of the proposed
rule. All other provisions of regulatory governance which apply to regulators while making draft regulations
will apply to the Central Government as well.
For outbound flows, the RBI must first consult the Central Government and then utilise the usual regulation-making
process.
In emergency circumstances, the Central Government or the RBI, as the case may be, need not follow the detailed rule
making process. However, consultation between the Central Government and the RBI must precede the rule making.
Additional controls on capital account transactions may be imposed in emergency circumstances.
The emergency rules and regulations will remain valid for only three months, and are required to be notified and
placed before both the Houses of the Parliament.
The emergency rules and regulations will remain valid for only three months, and are required to be notified and
placed before both the Houses of the Parliament.
Emergency situations include:
1. Outbreak of a natural calamity;
2. Grave and sudden changes in domestic and foreign economic conditions;
3. Serious difficulties or expectation of serious difficulties in international payments and international finance;
4. Proclamation of national emergency under Article 352 of the Constitution of India; or
5. Proclamation of financial emergency under Article 360 of the Constitution of India.
Table of Recommendations 8.3 Grant of approval
The Central Government, in relation to inbound flows, and the RBI, in relation to outbound flows, will have the authority
to grant approvals or dispose off applications by following a time-bound due process. Reasoned decision in this
regard must be provided. If approval is granted, it must clearly specify the scope, effective period and any conditions
subject to which it is granted.
While deciding on an application, the principles of proportionality between the costs imposed and the benefits expected
to be achieved must be considered, and similarly situated persons must be treated in a similar manner i.e.
full national treatment must be followed.
However, the Central Government and the RBI may impose conditions or reject applications on national security
considerations such as:
1. Ownership of critical infrastructure by foreign investors;
2. Ownership of critical technologies by foreign investors;
3. Control or ownership of assets in India by foreign governments;
4. Involvement of a non-resident or foreign government which presents a threat to peaceful coexistence of India
with other nations;
5. Involvement of a non-resident or foreign government which presents a threat or a major disruption to foreign
relations of India; or
6. Any other matter prescribed by the Central Government or specified by the RBI.
provide decisions within specific and reasonable time limits. However, the Central Government
and RBI may deny approvals or impose conditions where there are national security
considerations.
Table 8.3 establishes the Commission’s recommended framework regarding the granting
of approvals that is embedded in the draft Code.
8.3.4. Review
The decisions of the Central Government and the RBI will be subject to a two-tier review.
A senior officer in the Central Government will hear the matters relating to denial of approvals
or imposition of unnecessary conditions by the Central Government. Appeals
from orders of such senior officers would lie to the appellate tribunal. The administrative
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