Now, India’s new FDI policy includes start-ups

Now, India’s new FDI policy includes start-ups

FPJ BureauUpdated: Thursday, May 30, 2019, 03:56 AM IST
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Start-ups can raise up to 100 per cent of funds from Foreign Venture Capital  Investors

New Delhi : In another move to attract more foreign direct investment (FDI), the  government on Monday unveiled a “Consolidated FDI Policy” including in it start-ups for the  first time.

According to the document released by the Department of Industrial Policy and Promotion  (DIPP), start-ups can raise up to 100 per cent of funds from Foreign Venture Capital  Investors (FVCIs). Start-ups can issue equity or equity-linked instruments or debt  instruments to FVCIs against the receipt of foreign remittance.

The new document incorporates in simplified form all the changes  made over the past year further liberalising  foreign investment rules in over a dozen  sectors, including defence, civil aviation, construction and development, private security  agencies and news broadcasting.   Start-ups, moreover, can issue convertible notes to residents outside India under certain  conditions.

“Startups can issue convertible notes to persons resident outside India (subject to certain  conditions),” the document said.  “A start-up company engaged in a sector where foreign investment requires government  approval may issue convertible notes to a non-resident only with approval of the  government,” it said.

A convertible note is issued by a start-up firm to establish that it has received money as a debt, which will be repaid at the discretion of the holder, or will be converted into  specified number of the start-up’s shares.

Convertible notes to non-resident investors will have to be issued with government’s  permission in sectors where government approval is required for foreign investment, the FDI policy said.

A person resident outside India will be permitted to buy convertible notes issued by an  Indian start-up for an amount of Rs 25 lakh or more in a single tranche.

This, however, does not apply to citizens or entities of Pakistan and Bangladesh, who are allowed to invest in India only under the government route. Further, a citizen of Pakistan or an entity incorporated in Pakistan is also barred from  investing in defence, space, atomic energy and sectors or activities prohibited for foreign  investment, the document said.

Non-resident Indians (NRIs) can also acquire convertible notes on non-repatriation basis, it added.

FDI flows into India have nearly doubled over the last decade to reach $42 billion in fiscal 2016-17. During the first quarter of the current fiscal, FDI at $10.4 billion rose 37 per cent over the same period last year.

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