On 28th august ,2017 the Department of Industrial Policy & Promotion (DIPP) which is under ministry of commerce and industry has released the consolidated Foreign Direct Investment (FDI) Policy on Monday subsuming all the changes in rules and procedures notified by the government over the past year.
For the firsttime, the document included the start-upswhich can raise up to 100% of funds from foreign Venture Capital Investors(FVCI).During the last one year, the government has liberalised FDI policy in over a dozen sectors, including defence, civil aviation, construction and development, private security agencies and news broadcasting. Foreign investments are considered crucial for India, which needs around USD 1 trillion for overhauling its infrastructure sector such as ports, airports and highways to boost growth.
Highlights of the policy:
1) On start-ups: –
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.Start-ups can issue equity or equity linked instruments or debt instruments to FVCI against receipt of foreign remittance.A person resident outside India (other than citizens/ entities of Pakistan and Bangladesh) will be permitted to purchase convertible notes issued by an Indian start-up company for an amount of Rs25 lakh or more in a single tranche. NRIs can also acquire convertible notes on non- repatriation basis.
2)Sector specific conditions for FDI :-
Banking- Private Sector –Automatic route up to 49%. Approval route beyond and up to 74%
Banking -Public sector – only via government route up to 20%.
Infrastructure Company in the Securities Market – via automatic route up to 40%.
Insurance- via automatic route up to 49%
Pension Sector- automatic route up to 49 %
White Label ATM Operations– automatic route of 100%
Other Financial Services:-
Automatic route of 100% for Financial Services activities regulated by financial sector regulators, viz., RBI, SEBI, IRDA, PFRDA, NHB or any other financial sector regulator as may be notified by the Government of India.
Definitions of Terms in the policy :-
Automatic Route:
These foreign companies do not need a prior approval for investment either by the Government or the Reserve Bank of India.The investors are only required to intimate the Regional office concerned of the Reserve Bank within 30 days of receipt of inward remittance.
Approval Route:
There are certain activities that are not covered under the automatic route and that require prior Government approval and are considered by the Foreign Investment Promotion Board (FIPB).
About White Label ATM:
ATMs set up, owned and operated by non-bank entities are called “White Label ATMs” (WLAs). They provide the banking services to the customers of banks in India, based on the cards (debit/credit/prepaid) issued by banks.
Convertible Note:
It means an instrument issued by a start-up company evidencingreceipt of money initially as debt, which is repayable at the option of the holder, orwhich is convertible into such number of equity shares of such start-up company, within a period not exceeding five years from the date of issue of the convertible note, upon occurrence of specified events as per the other terms and conditionsagreed to and indicated in the instrument.
The whole revamped policy is aimed at providing an investor friendly climate to foreign players and, in turn, attract more FDI to boost economic growth and create jobs.
