What changed
Previously, equity issuance under the Government route was not explicitly permitted for import payables or pre-incorporation expenses. Now, RBI has expanded the scope to include these categories, with specific compliance conditions such as independent valuation, statutory auditor certification, and a 180-day conversion period.
What it means for you
Banks can now facilitate FDI equity conversions for import of capital goods and pre-operative costs, reducing cash outflow for companies. This eases compliance for foreign investors and Indian firms, but requires strict adherence to valuation, documentation, and timeline norms to avoid regulatory issues.
What you must do
- Verify that import of capital goods complies with DGFT policy and FEMA import regulations.
- Ensure independent valuation of capital goods by a third party, preferably from the country of import.
- Confirm conversion of import payables into FDI is completed within 180 days from shipment date.
- Check that pre-operative expenses are supported by FIRC and statutory auditor certification.
- Require a special resolution of the company for all conversion requests.
Who it affects
AD Category-I banks, Indian companies seeking FDI via Government route, Foreign investors providing capital goods or pre-operative funding
What is the timeline for converting import payables into equity under this circular?
All conversions must be completed within 180 days from the date of shipment of goods.
Are third-party payments allowed for pre-operative expenses?
No, payments must be made directly by the foreign investor to the company. Third-party payments are not eligible for equity issuance.
What documentation is needed for pre-operative expense conversion?
You need FIRC for remittance, statutory auditor certification, and direct payment proof from the foreign investor.