or the system, on the other. the case for simplifying regulations, removing fine prints associated with procedural prescriptions and elements of discretion are also important from the perspective of reducing compliance burden and facilitating flexible and nimble footed responses by authorised dealers and stakeholders. 27. but for a principle - based regulatory framework to work and work effectively, there are certain “ rules of the game ”. first, the shift presupposes that all participants including authorised dealers accept and adopt the change in letter and in spirit and ensure that the regulations are implemented in a fair and transparent manner and the benefits of the flexibility provided in the regulatory framework reaches the end users of the financial system. second, there has to be trust. the regulator needs to be able to trust that regulated entities will not abuse the flexibility provided in the regulations. third, the shift to a principle - based framework also entrusts a much higher level of responsibility on the authorised dealers. in fact, the more we move towards a principle - based framework, the greater will be the responsibility of the authorised dealers. for instance, under the new overseas investment regime, all transactions relating to odi ( or financial commitment ) by an eligible resident entity in a foreign entity is required to be routed through the designated ad bank. the ad bank is not only responsible for ensuring bona fides of the transactions and compliance with kyc / aml guidelines, but also compliance with fema provisions. we had earlier come across instances of ad banks permitting remittance towards overseas investment without receiving the requisite returns from the investor entity. though, it was always implicit in terms of section 10 ( 5 ) of fema, that such oversight by ad banks makes them liable for penal action under sections 11 and 13 of fema, the new directions have stated it unambiguously. new actors, new products, new markets - a new playing field 28. the foreign exchange arena, in particular, the foreign exchange market, has in many ways been a sheltered playing field for authorised dealers. but this is changing and changing fast. as an authorised dealer, till recently, you had to deal in a small suite of products. simple. easy to understand. easy to price. now that there is scope for authorised dealers to innovate and design new products, there are challenges. you need to think about whether a product is permissible. you need to understand the product. you need to be able to price it independently. you need to assess the client base

at breakneck speed. industrial goods, steel, automotive components, resource extraction, beverages, cosmetics, pharmaceuticals, mobile communications, software and financial services are some of the sectors where considerable interest has been shown by indian corporates. the bcg research has shown that 88 % of the emerging market global players are driven by the need to gain access to new markets and profit pools. overseas markets are expected to bring higher margins, revenue and volumes, besides opportunities for further growth. energy security is another driving force behind global acquisitions. • liberalised guidelines for overseas investment coupled with lower interest rate hitherto facilitated indian corporates to invest overseas • the capex undertaken by indian industry coupled with buoyancy in economy has strengthened the balance sheet of corporates enabling them to look for inorganic growth by way of acquisitions outside india. • the confidence shown by the global business community, particularly, availability of foreign funds at competitive rates and acceptance of managerial skills of indian workforce has led to surge in lbo activities. • another trend which is prominent in india ’ s overseas investment is market access. by undertaking overseas acquisition transactions, indian corporates are gaining entry into regulated market of developed countries. the best example is pharmaceutical industry, where indian corporates equipped with usfda approved facilities are looking for acquisition in the regulated market for ease of registration processes. the manufacturing activities will still be in india entailing low cost advantage. • transfer of technology is another issue driving for overseas investments. the manufacture of certain products requires technology that is not available to the indian companies. by acquiring companies abroad, they also acquire advanced manufacturing technologies that further help reduction in the cost of production. • indian companies are also going abroad to obtain a new product mix or to acquire products that will otherwise require huge investments and a long time to manufacture indigenously. • deployment of excess production resources or better yield on assets is another driving force. the indian corporates engaged in oil exploration / drilling / rig manufacturing are getting good returns on their assets by deploying their assets in the companies acquired in the high yield market. • development of natural resources like mining, oil exploration etc. has given an opportunity to indian corporates, rich with cash and need for energy, to expand their wings in unchartered territory. • post quota regime has also given an impetus to indian corporates to look for overseas ventures for enhancing their r & d and logistics to cater to developed markets. indian textile industry with scalable capacities to cater developed markets is feeling handicapped because