The Department of Industrial Policy and Promotion (DIPP) issued the Consolidated Foreign Direct Investment Policy Circular of 2017, effective from 28 August. The consolidated foreign direct investment (FDI) policy has made certain general changes to the conditions for making a foreign direct investment, as well as changes to sector-specific restrictions on investments.
The union cabinet in May approved the proposal to phase out the Foreign Investment Promotion Board (FIPB), the inter-ministerial body for processing FDI proposals and making recommendations to the government for its approval. The DIPP in June released its standard operating procedure (SOP) for processing FDI proposals. Specific authorities were designated in the SOP for various sectors for granting approval for foreign investment. This has been incorporated into the consolidated FDI policy.
Limited liability partnership (LLP). An LLP that has foreign investment and operates in sectors where 100% FDI is allowed through the automatic route, without any FDI-linked performance-related conditions, may now be converted to a company under the automatic route, and vice versa, subject to the remaining conditions under the FDI policy being complied with. Startups are now permitted to issue convertible notes to non-residents under the consolidated FDI policy, subject to certain conditions.
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Branch offices and liaison office. Reserve Bank of India approval is not required for the establishment of branch offices, liaison offices or other such places of business in India, if the principal business of the applicant is in the defence, telecom, private security, or information and broadcasting sector, and if the permission of the concerned regulator has been granted.
Single brand product retail trading. For single brand product retail trading, sourcing norms that require Indian manufacturers to source 30% of their products from Indian manufacturers and 70% of their products in-house are no longer applicable, for a period of three years from the commencement of business, for those entities undertaking retail of products that have state-of-the-art and cutting-edge technology, and where local sourcing is not possible. A committee is proposed to be formed that will examine individual claims for such relaxation of norms.
Pension funds. Pension funds that receive foreign investment must ensure that the ownership and control of the fund remain at all times in the hands of resident Indian entities.
Pharmaceuticals. Brownfield pharmaceutical companies have been permitted to receive investment under both the automatic route, up to 74%, and government approval route, beyond 74%, and additional conditions have been specified for both routes of investment.
Conversion of pre-incorporation expenses into equity. Wholly owned subsidiaries set up by non-resident entities that operate in sectors where 100% FDI is allowed, and there are no FDI-linked conditions, are now permitted to issue equity shares, preference shares, convertible debentures or warrants to the parent entity against pre-incorporation/pre-operative expenses incurred by the parent. This may be done up to a limit of 5% of the capital of the subsidiary, or US$500,000, whichever is less, subject to compliance with certain conditions.
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