The Department of Industrial Policy and Promotion (DIPP) of the Government of India’s Ministry of Commerce and Industry released the consolidated foreign direct investment (FDI) policy circular of 2017 (New FDI Policy), on 28 August 2017 effective immediately. The New FDI Policy has been released in wake of the abolition of the Foreign Investment Promotion Board (FIPB) and puts in place a transparent, predictable, and easily comprehensible policy framework on FDI in India. The New FDI Policy consolidates, subsumes, and supersedes the press notes/ releases/ clarifications/ circulars issued by the DIPP in relation to the FDI, which were in force as on 27 August 2017.
Some of the key highlights of the New FDI Policy are:
- deletion of references to the FIPB and replacing the same with “Competent Authority” which means the concerned administrative ministry/ department empowered to grant FDI approval under the government route, i.e. such FDIs where prior approval of the Government of India is required (Government Route). The New FDI Policy also lists out various competent authorities assigned with the power to grant approvals for FDI in different sectors/ activities;
- introduction of “Convertible Note” which 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 certain number of equity shares of such start-up company within a period of 5 (five) years from the date of issue of such convertible note, on the occurrence of specified events as per the terms and conditions agreed to and indicated in respect of such convertible note;
- permitting conversion of a limited liability partnership having foreign investment and operating in such sectors/ activities where 100% (one hundred per cent) FDI is allowed through the automatic route and where there are no FDI linked performance conditions, into a company, under the automatic route and vice-versa;
- permitting start-ups to issue equity/ equity linked instruments/ debt instruments to a foreign venture capital investor against receipt of foreign remittance;
- approval of the Reserve Bank of India is no longer required for establishing branch office, liaison office, or project office or any other place of business in India if the principal business of the applicant is in defence, telecom, private security, or information and broadcasting sectors and where Government of India’s approval or license/ permission from the concerned ministry/ regulator has already been obtained;
- in relation to the mechanism of obtaining approval under Government Route, the erstwhile mechanism under FIPB is replaced by that through the competent authority. The guidelines for e-filing of applications, filing of amendment applications, and instructions to applicants seeking Government of India’s approval are now available at the Foreign Investment Facilitation Portal (www.fifp.gov.in);
- inclusion of 100% (one hundred per cent) FDI under the Government Route for retail trading, including through e-commerce, in respect of food products manufactured and/or produced in India;
- non application of sourcing norms, for up to 3 (three) years from commencement of the business i.e., opening of the first store, for entities undertaking single brand retail trading of products having “state-of-art” and “cutting-edge” technology and where local sourcing is not possible;
- replacing the erstwhile paragraph in relation to non-banking finance companies with that in relation to “Other Financial Services” which now permits 100% (one hundred per cent) FDI under the automatic route for financial services activities regulated by financial sector regulators, viz., the Reserve Bank of India, the Securities and Exchange Board of India, the Insurance Regulatory and Development Authority, the Pension Fund Regulatory and Development Authority, the National Housing Bank or any other financial sector regulator as may be notified by the Government of India;
- additional compliance requirements for FDI in brownfield pharmaceuticals, both under the automatic route and the Government Route;
- permitting the buyer to make payment of not more than 25% (twenty five per cent) of the total consideration, in case of transfer of shares between a resident buyer and a non-resident seller or vice-versa, on a deferred basis within a period not exceeding 18 (eighteen) months from the date of the transfer agreement; and
- permitting a wholly owned subsidiary set up in India by a non-resident entity, operating in a sector where 100% (one hundred per cent) FDI is allowed in the automatic route and there are no FDI linked conditions, to issue equity shares/ preference shares/ convertible debentures/ warrants to the said non-resident entity against pre-incorporation/ pre-operative expenses incurred by the said non-resident entity up to a limit of 5% (five per cent) of its capital or USD 500,000 (US Dollars five hundred thousand) whichever is less, subject to certain prescribed conditions.
The New FDI Policy may be accessed through the following link: