Startup India: Easing of FDI opens automatic route for SMEs

Startup India Push: Government's recent decision to further liberalise the Foreign Direct Investment (FDI) norms for more than 21 sectors has made life easier for the startups, SMEs and MSMEs. Industry insiders say the introduction of Standard Operating Procedures (SOPs) for FDI proposals, allowing start-ups to issue convertible notes to foreign investors, permitting 100 per cent FDI automatic route for trading, including through e-commerce for food processing industries, will directly benefit MSMEs in India. Apart from a few sectors, near 90 per cent of total FDI inflows are now through the automatic route.

Speaking on FDI policies helping the SMEs in India Dr Arun Singh, Lead Economist at Dun and Bradstreet's said, "The government has taken a series of initiatives for further liberalization of the FDI regime in more than 21 sectors. Barring a few sectors which require government approval, around 90 per cent of total FDI inflows are now through the automatic route. While these apply to the overall sector in consideration, MSMEs equally will get the benefit. Introduction of Standard Operating Procedures (SOPs) for FDI proposals, allowing start-ups to issue convertible notes to foreign investors, permitting 100 per cent FDI automatic route for trading, including through e-commerce for food processing industries, will directly benefit MSMEs in India." 

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Dr Arun Singh went on to add that there have been concerns raised on the impact of single brand and multi-brand retail on the traditional brick and mortar stores. The relaxation of the mandatory 30 per cent local sourcing norms for foreign single-brand retailers have raised the concern level amongst MSMEs as the benefits envisaged now remains elusive.

Rajeev Chawla, Chairman, IamSMEofIndia said, "At a time when the central government has focussed on increasing SMEs share in exports, these moves are expected to give results on the expected lines." Around 40 per cent of the net Indian exports come from the SMEs.