# FDI & ODI Swap following Budget 2024

Published: 05 Sep 2024  |  Last updated: 22 Jul 2025
Author: Treelife
Practice area: Finance
Source: https://treelife.in/finance/fdi-odi-swap-following-budget-2024/

## Summary

- The Department of Economic Affairs has amended the FEMA (Non-debt Instruments) Rules 2019 to simplify FDI and ODI regulations following the Union Budget 2024 announcement.
- A new provision now permits FDI-ODI swaps, allowing an Indian company to acquire shares of a foreign company by issuing its own equity shares as consideration rather than cash.
- Under the swap mechanism, a foreign company transfers its shares in a foreign subsidiary to an Indian company, which issues its own shares in return, becoming the new holding company under the ODI Rules.
- Investments by Overseas Citizens of India (OCIs) on a non-repatriable basis are now excluded from the calculation of indirect foreign investment, a relief earlier available only to NRI investments.
- The aggregate Foreign Portfolio Investor (FPI) cap of 49% of paid-up capital on a fully diluted basis has been removed, and FPIs now only need to comply with applicable sectoral or statutory caps.
- White Label ATM Operations has been recognised as a new sector permitting 100% FDI under the automatic route, benefiting players such as India1 Payments, Indicash ATM (Tata Communications), Vakrangee, and Hitachi Payments.
- Non-resident to non-resident share transfers will now require prior government approval wherever applicable, widening the earlier requirement that applied only to sectors needing prior approval.
- The term control has been consolidated and defined under Rule 2, and the definition of startup company has been aligned with the DPIIT startup recognition notification dated 19 February 2019.
- Businesses structuring outbound investments should evaluate the FDI-ODI swap route as a non-cash alternative for cross-border share acquisitions, subject to compliance with FEMA and sectoral conditions.

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Blog Content Overview

- [0.1 Broad Mechanics](#Broad_Mechanics)

- [1 𝘖𝘵𝘩𝘦𝘳 𝘢𝘮𝘦𝘯𝘥𝘮𝘦𝘯𝘵𝘴:](#i)

Following the recent budget announcement, which aimed to simplify regulations for Foreign Direct Investment (FDI) and Overseas Investment (ODI), the Department of Economic Affairs has amended the FEMA (Non-debt Instruments) Rules 2019. A significant aspect of this amendment is the introduction of a new provision that enables FDI-ODI swaps. We have curated a slide below to help you understand this better.

### **Broad Mechanics**

- **Foreign Company A** holding shares in **Foreign Company B**.

- **Foreign Company A** transferring shares of **Foreign Company B** to **Indian Company**.

- **Indian Company** issuing its shares to **Foreign Company A** as consideration for acquiring shares of **Foreign Company B**.

- **Indian Company** is the [new holding company](https://treelife.in/compliance/mca-compliances-for-foreign-entities-starting-business-in-india/) of **Foreign Company B**.

**Indian Company now permitted to acquire shares of a Foreign Company under ODI Rules via the swap route.****
**i.e., Consideration for purchase of shares of **Foreign Company B** from **Foreign Company A** can be discharged by way of issuing its own equity shares to **Foreign Company A**.

## 𝘖𝘵𝘩𝘦𝘳 𝘢𝘮𝘦𝘯𝘥𝘮𝘦𝘯𝘵𝘴: 

1. Investment by OCIs on non-repat basis 𝐞𝐱𝐜𝐥𝐮𝐝𝐞𝐝 from calculation of indirect foreign investment. Earlier only NRI investment was excluded.

2. Aggregate FPI cap of 49% of paid-up capital on a fully diluted basis has now been removed. FPIs now required to 𝐨𝐧𝐥𝐲 𝐜𝐨𝐦𝐩𝐥𝐲 𝐰𝐢𝐭𝐡 𝐬𝐞𝐜𝐭𝐨𝐫𝐚𝐥 𝐨𝐫 𝐬𝐭𝐚𝐭𝐮𝐭𝐨𝐫𝐲 𝐜𝐚𝐩.

3. ‘White Label ATM Operations’ has been recognized as a new sector, with 100% 𝐅𝐃𝐈 𝐧𝐨𝐰 𝐚𝐥𝐥𝐨𝐰𝐞𝐝 𝐮𝐧𝐝𝐞𝐫 𝐭𝐡𝐞 𝐚𝐮𝐭𝐨𝐦𝐚𝐭𝐢𝐜 𝐫𝐨𝐮𝐭𝐞.

Key Indian players in this sector: India1 Payments, Indicash ATM (Tata Communications), Vakrangee, and Hitachi Payments.

4. NR to NR transfer will require prior Govt approval 𝐰𝐡𝐞𝐫𝐞𝐯𝐞𝐫 𝐚𝐩𝐩𝐥𝐢𝐜𝐚𝐛𝐥𝐞. In the erstwhile provisions, it was required only if investment in the specific sector required prior Govt approval.

5. Definitions – Control now defined in Rule 2, and definition of “startup company” has been aligned with “startups” recognised by DPIIT vide notification dated February 19, 2019. Definitions of “control” and “startup company” elsewhere have been deleted.

### Related posts:

- [Startup Valuations](https://treelife.in/finance/startup-valuations/)

- [Why Convertible Debentures are Investor Friendly – Types & Taxability](https://treelife.in/finance/why-convertible-debentures-are-investor-friendly/)

- [Reporting under CARO 2020 vs. CARO 2016](https://treelife.in/finance/reporting-under-caro-2020-vs-caro-2016/)

- [What is Accounts Payable? Definition, Example, Uses](https://treelife.in/finance/what-is-accounts-payable/)

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