The Reserve Bank of India (RBI) included Hong Kong and Macau in the sensitive list of countries, along with Pakistan and China that will require its prior approval to set up business or related activities in India. This was done under the Foreign Exchange Management Act (FEMA).
As per the existing conditions under the Foreign Exchange Management Regulations, no entity or person, being a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran or China is allowed to set up any branch office or a liaison office or a project office or any other such business activity without the prior permission of the RBI.
Why Macau and Hong Kong entities will require prior approval from RBI to set up business in India?
Macau and Hong Kong are two Special Administrative Regions controlled by China. Businesses in these two regions are mostly owned by the Chinese. They could easily come to India through their firms registered in Hong Kong or Macau. To this effect, Regulation 4 of Foreign Exchange Management (Establishment in India of branch or office or other place of business) Regulations 2000 has been amended by RBI. As a result of which establishments from Hong Kong and Macau will also require prior approval of the Reserve Bank of India to set up business in India. So far, the Foreign Exchange Management Regulation 2000 required establishments and individuals from Sri Lanka, Pakistan, Bangladesh, China, Afghanistan and Iran to take prior permission of RBI before indulging in any business activities. Entities from these countries are not allowed to acquire immovable property in India even for a branch office. They are allowed to lease property for a period not exceeding five years.