On 31 March, the Department of Industrial Policy & Promotion (DIPP), Ministry of Commerce & Industry, issued circular 1 of 2011. It reflects the policy framework on foreign direct investment (FDI) in India as of 1 April. Some of the changes incorporated in circular 1 are detailed below.
Prior to circular 1 if a non-resident investor had, as of 12 January 2005, an existing joint venture or technology transfer or trademark agreement in India, new investments in the same field required the prior approval of the Foreign Investment Promotion Board (FIPB) and a no-objection from the existing joint venture partner. To encourage foreign investment, the government has deleted this condition. So, inward investments after 1 April do not require approval from the FIPB or existing joint venture partners.
Paying for shares
Earlier, the issue of shares to non-resident investors for non-cash consideration was under the automatic route: 1) against lump sum technical know-how fee or royalty, and 2) on conversion of external commercial borrowings.
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Sandip Bhagat is a partner and Vivek Kumar is an associate at S&R Associates, a law firm with offices in New Delhi and Mumbai.
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