India unveiled a new foreign direct investment policy framework that for the first time comprises provisions specific to startups, a sector that is top on the government’s agenda.
The 2017 FDI policy circular lists startups as a separate section and spells out provisions that allow them to raise foreign money from venture capital funds and other investors through instruments such as convertible notes.
They can issue equity or equitylinked instruments to foreign venture capital (VC) investors, says the circular, the first issued after the abolition of the Foreign Investment Promotion Board (FIPB). The Department of Industrial Policy and Promotion (DIPP) released the rules on Monday with immediate effect.
Foreign residents, except those in Pakistan and Bangladesh, will be permitted to purchase convertible notes issued by an Indian startup for Rs 25 lakh or more in a single tranche, it said. Startups will have to take requisite government approval in sectors where FDI is not under automatic route to issue convertible notes.
The government had recently relaxed rules for VCs getting funds from fund of funds, allowing them to invest a part of the corpus in firms other than startups. The government hopes this to encourage more VC funds to invest in Indian startups. Non-resident Indians can also acquire convertible notes on a non-repatriation basis.
The circular takes into account the changes made to the FDI policy after the abolition of FIPB. The new document specifies the respective administrative departments that will decide on FDI proposals.
DIPP is the administrative ministry for FDI policy and proposals that require government approval. In the past one year, the government has liberalised the FDI policy in over a dozen sectors, including defence, civil aviation, construction and development.
By Baishakhi Dutta
