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The Commerce Ministry in its consolidated Foreign direct investment (FDI) policy document released on Monday has for the first time included start-ups, which can raise up to 100 per cent of funds from Foreign Venture Capital Investor (FVCI).
Start-ups can issue equity or equity linked instruments or debt instruments to FVCI against receipt of foreign remittance, said the document which incorporates all the changes made in FDI policy over the past year.
"In addition, startups can issue convertible notes to person resident outside India (subject to certain conditions)," it said.
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.
"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 said, adding that the startup issuing convertible notes would be required to furnish reports as prescribed by the RBI.
The government is focusing on start-up companies to promote job creation and innovation.
The DIPP, which deals with FDI related matters, compiles all policies related to foreign investment regime into a single document to make it simple and easy for investors to understand.
Investors would otherwise have to go through various press notes issued by the department, and the RBI regulations to understand the policy. The government updates the policy every year.
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.
During the last one year, the government has liberalised FDI policy in over a dozen sectors, including defence, civil aviation, construction and development, private security agencies and news broadcasting.
Foreign investments are considered crucial for India, which needs around $1 trillion for overhauling its infrastructure sector such as ports, airports and highways to boost growth.
Foreign investments will help improve the country's balance of payments situation and strengthen the rupee value against other global currencies, especially the US dollar.