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Dividend balancing for foreign companies abolished

Jan 3, 2000

The government has done away with dividend balancing for foreign companies from January 1, 2000. The dividend pay-out for the foreign shareholders will no longer be on the basis of their export earnings. The step is a welcome one as the main reason for the multinational companies (MNCs) entering India is the attractiveness of the Indian market. There are only a few MNCs that treat India as an important production base. Moreover, the condition was imposed when there was an acute shortage of foreign exchange but now with foreign exchange reserves themselves hovering around $30 billion there was no need for such a regulation.

This condition would also have hampered foreign investment in Indian infrastructure projects where there was no question of any exports taking place but dividend pay-outs, would have been restricted.

At present around one-third of the international trade takes place among MNC arms themselves. If the norms for foreign investment themselves are made simpler it would bring in far more foreign exchange than what would accrue from MNC exports.

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