DIPP Released Consolidated FDI Policy, 30% of Value of Procurement of Manufacturing to be Done from MSMEs

The of Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce released the consolidated Foreign Direct Investment (FDI) policy document.

This Circular will take effect from August 28, 2017. The document mentions that at least 30% of the value of procurement of manufactured/processed products purchased shall be sourced from Indian micro, small and medium industries (MSMEs), which have a total investment in plant & machinery not exceeding USD 2.00 million.

This valuation refers to the value at the time of installation, without providing for depreciation. The ‘small industry’ status would be reckoned only at the time of first engagement with the retailer, and such industry shall continue to qualify as a ‘small industry’ for this purpose, even if it outgrows the said investment of USD 2.00 million during the course of its relationship with the said retailer.

Sourcing from agricultural co-operatives and farmers co-operatives would also be considered in this category.

The procurement requirement would have to be met, in the first instance, as an average of five years’ total value of the manufactured/processed products purchased, beginning 1st April of the year during which the first tranche of FDI is received. Thereafter, it would have to be met on an annual basis

Also, in the consolidated FDI Policy document 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, start-ups 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.

NRIs can also acquire convertible notes on non- repatriation basis, said the document.

"A start-up 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 start-up issuing convertible notes would be required to furnish reports as prescribed by the RBI.