DIPP- Department of Industrial Policy & Promotion has been looking into new means of developing the startup culture in India. In fact, in the last three years, the government has made up to 87 alterations to FDI policies, in an attempt to accelerate economic growth and job creation. As per their new initiative, they have updated the FDI policy allowing 100% Foreign Venture Capital Investment in Indian Startups.
The DIPP currently handles the task of compiling policies pertaining to foreign direct investment in India. Although most of these provisions have already been notified by respective authorities, the Consolidated FDI Policy serves as a single document for investors.
To increase FDI inflow, the Indian government has liberalised FDI policy in a variety of sectors, including defence, civil aviation, construction and development, private security agencies and news broadcasting over the past 12 months. As per the provisions in this section, startups will now be allowed to raise 100% funding from Foreign Venture Capital Investors (FVCIs) through convertible notes. The financing can also be done through the issuance of equity and debt instruments to FVCIs, the Department of Industrial Policy and Promotion stated.
The circular marks the first time that an updated FDI policy has been released, since the abolition of the 25-year-old Foreign Investment Promotion Board (FIPB) in May 2017.
Speaking on the occasion Anil Joshi, member of IVCA and Partner at Unicorn India Ventures, mentioned,
“Inclusion of Startups in FDI policy allowing 100 FVCI is a great initiative by the government. This initiative will help lot many start-ups to get access to much-needed capital which sometimes becomes cumbersome due to procedural issues. The government has taken proactive measures in supporting startups and allowing 100% FVCI is clear indication of importance what startups have in government’s scheme of thing.”
Foreign investors of all countries, with the exception of Pakistan and Bangladesh, will now be permitted by law to purchase convertible notes worth $39K (INR 25 Lakh) or more in a single tranche from startups based in India. A startup company engaged in a sector where foreign investment requires Government approval may issue convertible notes to a non-resident only with the approval of the Government. Henceforth, NRIs will be allowed to buy convertible notes from Indian startups on non-repatriation basis.
As revealed in the DIPP document, the latest changes to the FDI policy can be seen as an important step taken by the government to increase foreign venture capital investment in Indian startups. The ultimate goal, as iterated by PM Modi during the 71st Independence Day speech, is fostering a culture of job creation in the country.