FDI consolidated policy includes startups, allows 100% FVCI

In news:

The government has brought out the latest edition of its consolidated FDI policy document – a compilation of the changes made in the past one year in a single document.

Importance and highlights:

  • It is an initiative aimed at ensuring greater ease of doing business in India and an investor-friendly climate to foreign investors so that the country attracts more FDI.
  •  The Department of Industrial Policy and Promotion (DIPP) –is the nodal agency for FDI policy.
  • For the first time, the document has included start-ups. As per the norms, start-ups can raise up to 100 per cent of funds from Foreign Venture Capital Investor (FVCI).
  • The document said the start-ups can issue equity or equity linked instruments or debt instruments to FVCI against receipt of foreign remittance.
  • A person residing 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 Rs 25 lakh or more in a single tranche. Non Resident Indians can also acquire convertible notes on non- repatriation basis.
  • Start-ups can issue convertible notes to person resident outside India (subject to certain conditions).
  • 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.
  • The start-up issuing convertible notes would be required to furnish reports as prescribed by the RBI.
  • The last one year has seen FDI policy being liberalised in sectors, including defence, civil aviation, construction and development, news broadcasting and private security agencies. These reforms have been incorporated in the document.
  • 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.
  • Foreign investments will help improve the country’s balance of payments situation and strengthen the rupee value against other global currencies, especially the US dollar.

Foreign Venture Capital Investor

A Foreign Venture Capital Investor (FVCI) is an investor incorporated or established outside India who can invest either in a Domestic Venture Capital Fund or a Venture Capital Undertaking (Domestic Unlisted Company). Foreign equity player or Foreign Venture can also invest in India directly under FDI Scheme. SEBI has given certain benefits to the investors who are registered as an FVCI.

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