FIPB Abolishment, changing the plan not the goal!

Introduction:

India has last month scrapped the 25-year old Foreign Investment Promotion Board (FIPB) as it looks to attract more Foreign Direct Investment (FDI) by providing quick approvals under a single-window clearance system.

The FDI flows into India in two ways, the automatic route & through the approval by the government. The FIPB was been dealing with a single window authorization mechanism for FDI applications in sectors under the approval route. The FIPB was a designated institution which considered the FDI proposals which required government approval. It also granted composite approvals involving foreign investment/ foreign technology. It was nothing but a national agency of Government of India, with the duty to consider & recommend FDI that doesn’t come back beneath the automated route. The Finance Minister in the budget 2017-18 announced its purpose of ending FIPB in the financial year 2018. 

History of FIPB:

FIPB which was primarily constituted under the Prime Minister's Office in the wake of the economic liberalisation effort of the early 1990s, during 1996, the board was re-formed with the transfer of the FIPB to Department of Industrial Policy & Promotion (DIPP), subsequently FIPB was transferred to Dept. of Economic Affairs & Ministry of Finance. As per the June 2016 FDI policy revision, the FIPB could give recommendations of FDI proposals below Rs. 5000 crores to the Minister of Finance, FDI proposals above Rs.5000 crore is taken care of by the Cabinet Committee on Economic Affairs (CCEA), and will be continued by the same.

Functions of FIPB consisted-

1.    To quickly approve the foreign investment proposals,

2.    To review the FDI polices and to communicate with other agencies such as the Administrative Ministries in order to set up guidelines that are transparent and which encourage FDI into the various sectors,

3.    To look over the implementation of the various proposals which have been approved,

4.    To take up such activities that encourage FDI into the country such as establishing contracts with international companies and also inviting them to invest in India,

5.    To communicate with government, non-government and industry in order to increase the flow of FDI onto the country.

Reasons for abolishing FIPB:

FIPB has been abolished by the government with effect from 5th June, 2017, about 90% of the Foreign Direct Investment inflows were channelled through the Automatic Route which does not require erstwhile approval from the FIPB & is subject to sectoral rules. For the rest of the FDI inflows (about 8% of the total FDI), every division concerned has a structure or a regulator for it, Hence in the eyes of government, it had now reached a stage where FIPB can be phased out.

Welcoming a new structure:

The FIPB will be replaced soon by a new mechanism under which the proposals will be approved by the ministries concerned as per the standard operating procedure approved by the Cabinet. Now individual departments of the government have been empowered to clear FDI proposals in consultation with DIPP which will also issue the standard operating procedures for processing applications. 

The Standard Operating Procedure (SOP) shall involve the process of inter-ministerial consultation for the examination of FDI proposals, wherever necessary. The main objective behind creating SOP is to adopt a uniform and consistent process. The SOP shall involve the process of Inter-Ministerial consultations wherever necessary. The SOP will also recognise that ordinarily FDI applications, including those related to Non-Resident Indian, Export Oriented Unit, food processing proposals including single brand retail trading proposals and multi brand retail trading proposals, which should be decided within 60 days. A joint quarterly review meeting will be undertaken by a committee co-chaired by Department of Economic Affairs (DEA) and DIPP Secretary on pendency of proposals with Government. In the new standard operating system, there could also be a provision for quarterly review of pending proposals by the economic affairs secretary and annual review by the finance minister.

All pending applications with the FIPB would be transferred to the administrative ministry and oversight of the FIPB portal shall be transferred to the DIPP from the Department of Economic Affairs within four weeks. The proposals in sensitive sectors will require the approval of home ministry. With regard to the proposals pending with the FIPB, they will go back to the ministries concerned.

The Industry Ministry, in consultation with the administrative ministry will set detailed guideline for processing of the FDI proposals and ensure a "consistency of treatment and uniformity of approach", While the Home Ministry will only process those applications coming via automatic route but requiring security clearances, cases pertaining to approval route sectors requiring security clearance will be processed by the concerned administrative ministry. The DEA will clear proposals of financial services which are not regulated by a regulator or where there is more than one regulator or there is a doubt about the regulator.

Any FDI proposal in banks will be approved by the Department of Financial Services. FDI proposals by NRIs/EOU’s requiring approval of the government will be dealt with by the Department of Industrial Policy and Promotion (DIPP) and the DIPP will continue to be the administrative ministry for this purpose. Also, application for import of capital goods or machinery shall be handled by the DIPP.

However, applications involving investments from "Countries of Concern", requiring security clearance as per the FEMA guidelines and FDI policy, shall be processed by the Home Ministry. For FDI application in which there is a doubt about the administrative ministry concerned, the DIPP shall identify the ministry where the application will be processed, adding that the concerned ministry will have to seek Cabinet nod wherever required.

The concurrence of DIPP would be mandatory with reference to the FDI applications which are proposed to be rejected by the competent authority or where approval is proposed by competent authority subject to additional conditions not provided in the FDI policy. All past and future litigations and liabilities shall be handled by the administrative department and about 4,500 reference and record files currently with the FIPB secretariat will be transferred to concerned ministry.

Conclusion:

With this bold step, we can surely anticipate that India under the present government is walking towards the path of further development and enhancement. With the ease under new procedure there shall be growth in FDI and several sectors requiring FDI will be identified and modified, most of the sectors have already been liberalized to come through the “automatic” route keeping in mind the common goal of India being a developed nation.