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New FDI Policy Mentions Startups for the First Time, Allows 100% Funding by Foreign Venture Capital

The government is trying to shore up foreign direct investment in a bid to give the economy a boost and in the past 2 years has liberalised FDI rules in defence, civil aviation and the private security business.

Tushar Dhara | News18.com

Updated:August 28, 2017, 4:56 PM IST
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New FDI Policy Mentions Startups for the First Time, Allows 100% Funding by Foreign Venture Capital
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New Delhi: In a big boost to startups, the new FDI policy has mentioned startups for the first time and also allowed them to raise 100% funds from foreign venture capital investors.

The Department of Industrial Policy and Promotion (DIPP), an arm of the Commerce Ministry, on Monday released the consolidated FDI policy, which is effective immediately. The policy document not only consolidates the FDI rules issued by the government, but also mentions the investment rules governing startups, in a recognition of their growing importance.

“Start-ups can issue equity or equity linked instruments or debt instruments to FVCI against receipt of foreign remittance, as per the FEMA Regulation. In addition, startups can issue convertible notes to person resident outside India,” the document reads.

What this means is that in lieu of funding from foreign venture capital investors (FVCI), startups in India can issue shares of bonds. The FDI rules for startup funding state that except for persons or entities registered in Pakistan or Bangladesh, any foreign investor can invest in Indian start ups.

The government is trying to shore up foreign direct investment in a bid to give the economy a boost and in the past 2 years has liberalised FDI rules in defence, civil aviation and the private security business. In 2016-17 India received over $40 billion in FDI. A report by UBS securities India predicts that the quantum of investment is likely to rise over the next 5 years.
| Edited by: Bijaya Das
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