The road ahead for FDI to meet India’s growth target

The prime minister, during “Make in India” week, urged investors to “seize the opportunity and invest” in India. The government’s drive to woo foreign direct investment (FDI) led to reforms in over 15 sectors in 2015 and FDI inflows rose by over 24% in the first half of the current financial year.

In addition to easing the regulatory framework for existing businesses and in line with the government’s focus on startups, the Department of Industrial Policy and Promotion recently notified the definition of “start-up”. Earlier, the Reserve Bank of India (RBI) had also clarified that startups can issue sweat equity shares without cash payment or issue equity shares against any legitimate payment owed to them where such remittance does not require any permission under the Foreign Exchange Management Act, 1999. Startups having overseas subsidiaries can open foreign currency accounts abroad to receive payments on behalf of such subsidiaries. These clarifications will help build an ecosystem conducive for the growth of startups, as envisaged by the RBI in its monetary policy statement issued last month.

Although policy liberalization has improved investor sentiment, some concerns in the FDI policy still need to be allayed to reinforce investor faith in India.

Luthra & Luthra Law Offices is a full-service law firm with offices in Delhi, Mumbai, Bangalore and Hyderabad. Damini Bhalla is a partner and Akshay Jain is an associate at the firm. The views of the authors are personal. This article is intended for general informational purposes only and is not a substitute for legal advice.