A business firm requires finance to commence its operations, to continue its operations and for its expansion and growth. Indian companies need financial support in order to make their investments abroad. There must be continuous flow of funds in and out of business. They need funds to meet their various capital requirements; to make equity participation in overseas ventures as well as to acquire foreign companies or businesses. Sound plans, efficient production and marketing are all dependent on smooth flow of finance.

Till 1990, the Government policies were not in favour of obtaining finance or capital from overseas markets and the Indian industry by and large could not take advantage of the availability of cheap finance from abroad. The rationale for raising capital (either as equity or debt) from abroad is the desire on the part of companies to tap low cost funds and broaden the shareholder's base. This also serves as a launching pad for future overseas operations such as opening of branches, acquiring assets abroad as well a expanding the business operations abroad.The issue of ordinary shares and foreign currency convertible bonds (FCCBs) began in 1992 with a Government notifying the Scheme for Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993.