Friday, April 15, 2011

RELEASE OF REVISED THIRD EDITION OF CONSOLIDATED FOREIGN DIRECT INVESTMENT (FDI) POLICY EFFECTIVE FROM 1 APRIL 2011

Government of India (GOI) has released Consolidated Foreign Direct Investment (FDI)
policy effective from 1 April 2011. The key changes / liberalizations introduced by the revised Foreign Direct Investment (FDI) policy are:

Pricing of Convertible instruments

The earlier Foreign Direct Investment (FDI) policy required the conversion price of equity convertible instruments (debentures and preference shares) to be determined upfront at the time of issue of such convertible instruments. With an intention to provide better valuation based on performance, the revised Foreign Direct Investment (FDI) Policy permits the option of using a conversion formula for such convertible instruments subject to FEMA/SEBI guidelines on pricing.

Issue of Shares permitted against specified non-cash considerations under Approval Route

Apart from conversion of ECB/lump-sum fee/ Royalty into equity under the Approval Route, the
revised Foreign Direct Investment (FDI) policy now permits issue of equity / equity convertible
instruments under the Government / Approval route in the following cases:


  • Import of capital goods/ machinery/ equipment (including second-hand machinery)
  • Pre-operative/ Pre-incorporation expenses (including payments of rent etc.).

The above is subject to compliance with specified conditions including special resolution of the
company and pricing guidelines.

Approval / conditionals surrounding previous joint venture/collaborations done away with

The revised Foreign Direct Investment (FDI) policy has done away with the prior approval requirement for new ventures / collaboration by Non-residents who had existing joint ventures / technical collaboration in the same field. Further, for ventures/ technical collaboration, the requirement for incorporating a 'conflict of interest' clause in the Joint Venture Agreement has been done away with.

Guidelines relating to Down-Stream investments

The revised Foreign Direct Investment (FDI) policy now incorporates only two categories of
Companies - 'companies owned or controlled by foreign investors' and 'companies owned and
controlled by Indian residents'. The earlier categorization of companies as 'investing
companies', 'operating companies' and 'investing- cum-operating companies' has been done away
with.

Sector specific policy for FDI in agriculture

In the Agriculture Sector, the revised Foreign Direct Investment (FDI) policy now permits Development and production of Seeds and planting material without the stipulation of having to do so under controlled conditions

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