India’s New Consolidated Foreign Direct Investment Policy (FDI)

Kegler Brown Global Business News

The Indian Department of Industrial Policy and Promotion (DIPP), India's regulator in charge of formulating the country’s Foreign Direct Investment Policy (FDI), just released India's revised Consolidated FDI Policy, effective April 1, 2011. View the full text of the new Consolidated FDI Policy.

Certain noteworthy changes for foreign (i.e. US) investors, include the following:

  • Elimination of Prior Foreign Investment Promotion Board (FIPB) Approval for Pre-Existing Joint Ventures:
    This elimination provides a major relaxation in FDI policy. Obtaining the prior approval of the FIPB and receipt of a “No Objection Certificate” from the existing JV partner is no longer a prerequisite for investing in the country. It is expected that this measure will promote the competiveness of India as an investment destination and be instrumental in attracting higher levels of FDI and technology inflows into the country.
  • Streamlining of Approval Requirements for Investments in Holding and Shell Companies and for Downstream Investments:
    The new policy simplifies the requirements for regulatory approval of investments in holding company or shell company structures in India by eliminating the distinctions in the prior policy between operating companies, operating-cum-investing companies and only investing companies.
  • Conversion to Equity based upon Imports:
    Permission exists to issue equity to foreign firms against imported capital goods, machinery and equipment (including second-hand machinery). Pre-operative or pre-incorporation expenses (including payment of rent) are also now allowed to be converted into equity.
  • Agriculture Sector Liberalized:
    The new policy allows overseas investments in production and development of seeds and planting materials.

The new FDI policy is part of ongoing efforts to achieve procedure simplification and FDI rationalization, which will go a long way in inspiring investor confidence in India.

For further information or clarification, contact Vinita Bahri-Mehra, Esq. at [email protected] or 614-255-5508.