Strategic Advisory on FDI policy
Policy Advisory

The Department of Industrial Policy and Promotion (DIPP) has released the Consolidated FDI Policy – 2017 on 28th Aug. 17, with an objective to attract and promote FDI in India, in order to supplement domestic capital, technology and skills for economic growth.

Brief highlights –

For the first time, FDI circular has included Start-ups which can raise up to 100% of funds from Foreign Venture Capital Investor (FVCI). Start-ups can issue equity or equity linked instruments or debt instruments to FVCI against receipt of foreign remittance. Now provisions have also been included relating to the issue of equity/equity-linked instruments/debt instruments and convertible notes by Start-ups.

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-ups company for an amount of INR 25 lakh or more in a single tranche. NRIs can also acquire convertible notes on non-repatriation basis.

It is formally clarified that the restriction of 25% on sales from a single vendor/group company through an e-commerce marketplace will be computed on a financial year basis. Also, the sales will be calculated based on value (not volume) of items sold on a financial year basis. The DIPP had earlier through Press Note 3 of 2016 series mandated 25% maximum sales from a single vendor, but had not specified the period for computation of sales. This provision encourages e-market players to sell goods from different vendors.

It is clarified that conversion of an LLP into a company and vice-versa is permitted under automatic route for sectors where 100% FDI is allowed.

The policy simplifies the definition of ‘Venture Capital Fund’ and defined FDI-linked performance conditions without diluting substance. ‘Venture Capital Fund’ is now defined as a fund so registered under the SEBI (Venture Capital Funds) Regulations, 1996.

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