Circular 1 of 2011 is the third edition of the Consolidated FDI Policy. This Circular will take effect from 1st April, 2011. The following major changes have been incorporated in the latest consolidation:
(i) Pricing of convertible instruments:
Instead of specifying the price of convertible instruments upfront, companies will now have the option of prescribing a conversion formula, subject to FEMA/SEBI guidelines on pricing.
(ii) Inclusion of fresh items for issue of shares against non-cash considerations:
The existing policy provides for conversion of only ECB/lump-sum fee/Royalty into equity. This Circular now permits issue of equity, under the Government Route (Approval Route), in the following cases, subject to specific conditions:
(a) Import of capital goods/machinery/equipment (including second-hand machinery)
(b) Pre-operative/pre-incorporation expenses (including payments of rent, etc.)
(iii) Removal of the condition of prior approval in case of existing joint ventures/technical collaborations in the ‘same field’:
With a view to attract fresh investment and technology inflows into the country and to also reduce the levels of Government intervention in the commercial sphere the Government has decided to abolish this condition of obtaining prior approval in case of existing joint ventures/technical collaborations in the same field.
(iv) Guidelines relating to down-stream investments:
The guidelines have been comprehensively simplified and rationalised. Companies will 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 ‘investingcum- operating companies’ has been done away with.
(v) Development of seeds:
In the agriculture sector, FDI will now be permitted in the development and production of seeds and planting material, without the stipulation of having to do so under ‘controlled conditions’.
