The government on Thursday allowed unlisted companies to raise capital abroad without the requirement of prior or subsequent listing in India. The move, which is expected to enhance foreign capital flow to the country, had been discontinued since 2005 after remaining in practice for more than a decade.

"It has now been decided with the approval of the Union Finance Minister that unlisted companies may be allowed to raise capital abroad without the requirement of prior or subsequent listing in India," the Finance Ministry said in a statement.

This scheme, it said, will be implemented on a pilot basis for two years from the date of notification, following which the impact of this arrangement will be reviewed.

"While raising resources abroad, the listing company shall be fully compliant with the FDI policy in force. The capital raised abroad may be utilised for retiring outstanding overseas debt or for operations abroad, including for acquisitions," the Finance Ministry said.

In case the funds raised are not utilised abroad, the Ministry said, such companies will have to remit the money back to India within 15 days. The money will be parked only in banks recognised by the Reserve Bank of India (RBI).

The relevant notifications in this regard will be issued by the Ministry of Finance, Department of Industrial Policy and Promotion (DIPP) and RBI in due course. The proposal will benefit companies in sectors that are better understood and appreciated overseas by getting better valuations and helping them to attract foreign capital. Unlisted companies already have access to overseas debt, giving them access to foreign equity markets.

India has in recent months significantly relaxed its foreign direct investment regime to attract long-term capital into the country to finance its current account deficit that stood at a high of 4.8 per cent of the GDP in 2012-13.