Indian Govt. Relaxes FDI Policy, Signaling A Favorable Environment For Unlisted Companies

The Indian Government is now experimenting with policies pertaining to Foreign Direct Investment (FDI) to ensure small and unlisted companies receive the much needed financial infusion.

Government of India’s (GoI) modified FDI policy now allows unlisted companies to raise capital abroad, without the requirement of prior or subsequent listing in India initially. As per the new rules, the Indian companies will have a time-frame of 2 years to go on raising foreign capital without being listed in India.

What has Govt. changed in the new policy?
Earlier, Unlisted Companies (UCs), which have not yet accessed the ADR/GDR (American Depository Receipts/Global Depository Receipts) route, for raising capital in the international market, were required a prior or simultaneous listing in the domestic market while seeking to issue such overseas instruments. Additionally, such UCs which had already issued ADRs/GDRs in the international market had to get listed in the domestic market on making profit or within three years of such issue of ADRs/GDRs, whichever is earlier.

Why is this important?
Though getting listed in India is not such a big deal, the procedures can get a bit lengthy and tricky. There are multiple formalities that need to be carefully coordinated and synchronized in order to become a listed company. Thereafter, these listed companies have to maintain a very thorough record of all financial expenditure and have to be quite transparent about their operations, revenues and other monetary exchanges.

Traditionally, companies have been funded on Bootstrap basis, wherein money was pooled from regional resources and the business began. Such procedures are necessary once the company gains a foothold and momentum. But today the scenario has changed. Internet based start-ups often require substantial funding even before they take the form of a proper company and such mandatory procedures can often cause severe hindrance and wastage of time and resources.

With routine modifications in the FDI Policy, the government is trying to bring in a lot a flexibility that is hoped, will bring in a lot of foreign exchange within the country. Let’s see how many companies take advantage of this relaxation to pull-in foreign funds, before generating their own.

Image Source | fdiindia

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