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Home arrow News arrow Business News arrow Foreign Direct Investment rules relaxed to boost FDI and Technology inflows
Foreign Direct Investment rules relaxed to boost FDI and Technology inflows Print E-mail
Written by Anand   
Friday, 01 April 2011
New Delhi: The Government has decided to permit issue of equity, under the Government route for import of capital goods/ machinery/ equipment (including second-hand machinery) and pre-operative/ pre-incorporation expenses (including payments of rent etc). This has been done after stakeholder consultations.

The existing policy provides for conversion of only ECB/lump-sum fee/Royalty into equity.  A discussion paper on the possibility and need for inclusion of additional items into equity had been released by DIPP in September, 2010.

This measure, which liberalises conditions for conversion of non-cash items into equity, is expected to significantly ease the conduct of business.

The condition of prior approval in case of existing joint ventures/technical collaborations in the 'same field' has been removed. A discussion paper had been released by DIPP last year on the need for review of this condition. There is a felt need to attract fresh investment and technology inflows into the country, as also to reduce the levels of State intervention in the commercial sphere. Keeping in view the above, Government has decided to abolish this condition. It is expected that this measure will promote the competitiveness of India as an investment destination and be instrumental in attracting higher levels of FDI and technology inflows into the country.

The guidelines relating to down-stream investments have been comprehensively simplified and rationalised.  Companies have now been classified into only two categories – ‘companies owned or controlled by foreign investors’ and ‘companies owned and controlled by Indian residents’. The earlier categorisation of ‘investing companies’, ‘operating companies’ and ‘investing-cum-operating companies’ has been done away with.

Instead of specifying the price of convertible instruments upfront, companies will now have the option of prescribing a conversion formula, subject to the FEMA/ SEBI guidelines on pricing. This would help the recipient companies in obtaining a better valuation based upon their performance.

Circular 1 of 2011 is the third edition of the Consolidated FDI Policy. One year has passed since the policy on Foreign Direct investment (FDI), was consolidated and released for the first time, effective 1.4.2010. At that time, Government had committed to updating this document every six months. The second edition was released, effective from 1.10.2011.

Last Updated ( Friday, 01 April 2011 )
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