FIPB Abolished

The 24th of May, 2017 was a turning point in the history of Foreign Direct Investment (FDI) of India as it was the day when the 25 year old Foreign Investment Policy Board (FIPB) was abolished, resulting in the alteration of the FDI procedure in India. The FIPB was set up under the Prime Minister’s Office after India was liberalized in 1991.

FIPB was an inter-ministerial body under the Department of Economic Affairs of the finance ministry responsible for managing foreign direct investment (FDI) proposals and recommending for approval to the finance minister and subsequently to the Cabinet Committee on Economic Affairs if the investment amount exceeded Rs. 3,000 crores.

The decision to abolish FIPB was taken by the council of ministers headed by Prime Minister Narendra Modi. The new regime has changed the procedure for FDI through approval route in India. Though 90%-95% of FDI took place through automatic routes, still there were 11 sectors which required government approval. Now that the FIPB has been wound up, the Department of Industrial policy and Promotion (DIPP) will direct all the FDI proposals requiring government approval to concerned ministries and departments.

The reason behind abolishing FIPB was to attract foreign investors and make it easy for them to do business in India. This step has also been taken to boost the ‘Make in India’ initiative. The notion behind this regime is ‘Maximum Governance and Minimum Government’.

Government Department and Ministries Responsible for Foreign Direct Investment Approvals

FDI proposals related to sensitive sectors will be dealt by Ministry of Home affairs. Also, the Department of Economic affairs will process those proposals which do not fit into specific department or ministry.

Procedure to be followed by Ministries

The DIPP has made a set of standard operating procedures (“SOP”) for ministries now tasked with approving FDI requests. It will include:

• The creation of an FIPB online portal called the Foreign Investment Facilitation Portal;
• A deadline of four weeks for ministries involved to digitally upload their comments on FDI proposals that do not require security clearance, and six weeks for FDI proposals that do require security clearance,
• An overall ten week deadline for ministries to approve FDI requests requiring security clearance, and
• An overall eight week deadline for ministries to approve FDI requests that do not require a security clearance.

Investors will no longer have to submit physical FDI proposals; so long as their digitally uploaded proposals are properly signed. Ministries and departments can only reject an FDI proposal after receiving permission from the DIPP.

The Road Ahead

FIPB was abolished for the ease of doing business, but one cannot ignore the fact, that the ultimate decision regarding the acceptance or rejection of the proposal still lies with the bureaucrats. The process will become simplified and expeditious only when field experts determine whether a proposal is beneficial or not. We need to ensure that the new approval procedure is implemented within the statutory timeline and does not get affected by the pitfalls of bureaucracy.