In a bid to give a big push to startups in India, the Department of Industrial Policy and Promotion (DIPP), an arm of the Commerce Ministry, in its newly consolidated foreign direct investment (FDI) policy document has included start-ups for the first time and allowed them to raise up to 100 percent of funds from Foreign Venture Capital Investor (FVCI). The document, which incorporates in simplified form all the changes made in FDI policy over the past year, has stated that the start-ups can issue equity or equity linked instruments or debt instruments to FVCI against receipt of foreign remittance. It also said that startups can issue convertible notes to person resident outside India under certain conditions.
According to the updated FDI policy, a person resident outside India (other than citizens/ entities of Pakistan and Bangladesh) will be permitted to purchase convertible notes issued by an Indian startup company for an amount of Rs 25 lakh or more in a single tranche. It also said that Non-resident Indian (NRIs) can also acquire convertible notes on non- repatriation basis. Adding further, it said that a startup company engaged in a sector where foreign investment requires Government approval may issue convertible notes to a non-resident only with approval of the Government. It noted that the startup issuing convertible notes would be required to furnish reports as prescribed by the Reserve Bank of India (RBI).
In order to promote job creation and innovation, the government is focusing on startup companies. 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. The government updates the FDI policy every year. In the past year, the government has liberalised FDI policy in a number of sectors including food retail, construction and development, civil aviation, defence and private security agencies.