The Department of Industrial Policy and Promotion (DIPP) on Monday included a chapter on start-ups for the first time in its consolidated foreign direct investment (FDI) policy and spelt out “competent authority” for FDI approvals, delegating powers to mainly administrative departments in the absence of the the Foreign Investment Promotion Board.
The Department of Industrial Policy and Promotion (DIPP) on Monday included a chapter on start-ups for the first time in its consolidated foreign direct investment (FDI) policy and spelt out “competent authority” for FDI approvals, delegating powers to mainly administrative departments in the absence of the the Foreign Investment Promotion Board. The latest consolidated FDI policy, which usually factors in various changes over the past one year to make it easier for foreign investors to get informed of various rules, also formally clarified that restriction of 25% on sales of one vendor through an e-commerce marketplace will be computed on a financial year basis. The period to be considered for compliance wasn’t mentioned earlier.
It also contains provisions relating to the issue of equity/equity-linked instruments/debt instruments and convertible notes by start-ups. Almost all these provisions have already been notified by authorities, mainly the RBI. However, the policy has put together several of these under one chapter and at times added clarity and simplicity to most of them. For instance, it says start-ups can issue equity or equity-linked instruments or debt instruments to foreign venture capital investors against receipt of foreign remittance, as per the FEMA Regulation. This was notified by the RBI in October last year. Start-ups can also issue convertible notes to persons resident outside India, albeit with certain conditions, the consolidated policy says. 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 `25 lakh or more in a single tranche.
While proposals relating to banking, mining, defence, broadcasting, civil aviation, telecoms, pharmaceuticals etc will have to be approved by administrative ministries, the DIPP will be the authority to clear proposals relating to areas including retail (single and multi-brand, and food). For proposals relating to financial services activities that are not regulated by any financial sector regulator or where only part of the financial services activity is regulated or where there is doubt regarding the regulatory oversight, the department of economic affairs will clear the proposals.
The policy simplifies the definition of ‘venture capital fund’ defined FDI-linked performance conditions without diluting substance. So instead of complex definitions under the earlier FDI regime, ‘venture capital fund’ is now defined as a fund so registered under the Sebi (Venture Capital Funds) Regulations, 1996, while FDI-linked performance conditions are basically the sector-specific conditions for companies receiving foreign investment.
It also clarified that the conversion of an LLP into a company and vice versa is allowed under the automatic route for sectors where 100% FDI is permitted through the automatic route and there are no FDI-linked performance conditions.