The Department of Industrial Policy and Promotion (DIPP) has issued the Consolidated FDI Policy, 2017

The Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce and Industry has issued the Consolidated FDI Policy, 2017, August 28, 2017, effective immediately, superseding all the earlier Press Notes/Press Releases/Clarifications/Circulars by DIPP effective earlier.

Highlights of key changes in the policy document this year are as follows:
  • Introduction certain new definitions
The Policy introduces certain new definitions such as ‘Convertible Note’, ‘Competent Authority’, and ‘FDI linked performance conditions’
a)  ‘Competent Authority’ has been defined as the concerned Administrative Ministry/Department empowered to grant government approval for foreign investment under the extant FDI Policy and FEMA Regulations. Union Cabinet has already approved to phase out the Foreign Investment Promotion Board (FIPB), making the FDI applications under the approval route, to move more swiftly via concerned Ministries/Departments in consultation with DIPP.
b)  ‘Convertible Note’ has been defined as an instrument issued by a start-up company evidencing receipt of money initially as debt, which is repayable at the option of the holder, or which 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 conditions agreed to and indicated in the instrument.
Here, the term has been included to in reference to the most crucial relaxation to the Start-ups showered by the RBI early this year permitting the Indian start-ups to raise funds from Foreign Investors by issuing Notes.
c)  ‘FDI linked performance conditions’ has been defined as the sector specific conditions for companies receiving foreign investment.

  • Deletion of the definition of FIPB in view of its abolition.

  • Conversion of LLP into Company and vice versa:
Conversion of an LLP having foreign investment and operating in sectors/activities where 100% FDI is allowed through the automatic route and there are no FDI-linked performance conditions, into a company is permitted under the automatic route. Similarly, conversion of a company having foreign investment and operating in sectors/activities where 100% FDI is allowed through the automatic route and there are no FDI-linked performance conditions, into an LLP is permitted under the automatic route.

  • Special mentioning of Start-ups in the consolidated policy for the first time
The RBI has allowed start-ups to raise 100% funding from foreign venture capital investor upon issuance of equity, equity linked instruments or debt instruments, irrespective of their operating sector.
Further, in line with the relaxation for Start-ups, allowing issuance of convertible notes under FDI vide RBI Notification No. 377/ 2016-RB dated 10th January 2017, a separate para numbered 3.2.6 has been inserted under the head eligible investees for FDI in the Country.

  • Establishment of BO, LO, PO or any other place of business in India in prescribed sectors, not to require RBI approval in cases government approval/license by concerned regulator is obtained
This is in line with the press note 5 of 2016 dated June 24, 2016 issued by the Government waiving off the RBI approval for establishment of branch office, liaison office or project office or any other place of business in India if the principal business of the applicant is Defence, Telecom, Private Security or Information and Broadcasting, in cases where Government approval or license/permission by the concerned Ministry/Regulator has already been granted.

  • Reporting of Downstream Investment
With the abolishment of FIPB and formation of Foreign Investment Facilitation Portal by DIPP, Eligible Indian entities are now required to notify downstream investment to RBI and Foreign Investment Facilitation Portal instead of Secretarial of Industrial Assistance (SIA), Department of Industrial Policy and Promotion (DIPP) and Foreign Investment Promotion Board (FIPB).

  • Issuance of Equity to Non Residents against pre operative expenses
This is in line with the amendment in the FDI regulations vide notification dated October 24, 2016, allowing a WOS set up in India by a non-resident entity, operating in a 100% Automatic route sector, to issue equity shares or preference shares or convertible debentures or warrants to the said non-resident entity against pre-incorporation/ pre-operative expenses incurred by the said non-resident entity up to 5 % of its capital or USD 500,000 whichever is less, subject to prescribed.

  • Insertion of new chapter on Procedure for Government Approval
Erstwhile Chapter 4 dealing with FIPB has been replaced with the new chapter dealing with Procedure for Government Approval in view of Standard Operating Procedure SOP for processing of FDI applications.
Applications seeking Government approval would be dealt by the respective ministry or department instead of FIPB.

  • Changes in the sector specific conditions in FDI under Chapter 5
Changes under Sector Specific conditions have been made in line with the issuance of Press Note no. 5 of 2016 dated June 24, 2016, wherein FDI in Defence was allowed up to 100% with 49% under Automatic route; and sectoral limits in Broadcasting carriage services; Civil Aviation; Private Security Agencies and Pharmaceuticals were amended.

  • Relaxation on Payment of Consideration in Cross Border Transfer of shares of Indian Company
In view of the Notification No. FEMA.368/2016 RB dated 20 May 2016, the RBI, in a welcome move, allowed payment of consideration for a transfer of shares between a resident buyer and a nonresident seller or vice-versa, on a deferred basis, subject to the certain conditions, prior to which it was allowed with prior approval of the RBI.
Accordingly, the changes in Annexure 3 dealing with the provisions relating to issue/ transfer of shares, have been made.

The Policy for the first time explicitly mentions Start-ups as one of the eligible investee entities and consolidates all the relaxations given to boost the Indian Start-ups, including the permission to raise 100% via foreign venture capital investors and issuance of notes under FDI framework.
It also consolidates the effect of FIPB abolition soothing FDI proposals under Government route and an introduction of Foreign Investment Facilitation Portal wherein the FDI approval applications will be dealt as per the speedy and transparent SOP i.e. Standard Operation Procedure.
With Government in its continuing push to promote, overall foreign investment and ease of doing business in the Country have offered various relaxations to Start-ups. It has further pushed FDI limits in various sectors and streamlined various reporting compliances.


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