For the first time start-ups have featured in the Consolidated FDI Policy, which was updated and released for the year 2017 by Department of Industrial Policy and Promotion today.
Start-ups can issue equity or equity linked instruments or debt instruments to FVCI against receipt of foreign remittance, as per the FEMA Regulation, the document read.
Moreover, start-ups can issue convertible notes to person residing outside India under certain conditions. The FDI Policy stated that convertible notes to non-resident investors will have to be issued with government's permission in sectors where government approval is required for foreign investment. Investors residing in Pakistan or Bangladesh may purchase convertible notes issued by an Indian start-up company for an amount of Rs 25 lakh or more in a single tranche, it also stated.
Convertible Note is an instrument issued by a start-up company establishing that it has received money as debt, which will be repaid at the discretion of the holder or will be converted into specified number of shares of the start-up.
Also, according to the updated FDI policy, NRIs can invest in the capital of Indian companies on repatriation basis. This can be done on a condition that the amount of consideration for such investment shall be paid only by way of inward remittance in free foreign exchange through normal banking channels.
The provisions of the updated FDI Policy seem to be in line with government agenda to promote job creation and innovation through start-up companies.
The DIPP, which deals with FDI related matters, compiles all policies related to foreign investment regime into a single document to make it simple and easy for investors to understand. It is updated every year.
The document saves investors' time, who would have to study numerous press notes issued by the department, and the RBI regulations to understand the policy. The whole exercise is aimed at providing an investor friendly climate to foreign players and, in turn, attract more FDI to boost economic growth and create jobs.
During the last one year, the government has liberalised FDI policy in over a dozen sectors, including defence, civil aviation, construction and development, private security agencies and news broadcasting.
Foreign investments are considered crucial for India, which needs around USD 1 trillion for overhauling its infrastructure sector such as ports, airports and highways to boost growth.
Foreign investments will help improve the country's balance of payments situation and strengthen the rupee value against other global currencies, especially the US dollar.
(With PTI inputs)