New Delhi: In a move to reduce red tape in government and facilitate ease of doing business, the Narendra Modi government on Wednesday abolished the Foreign Investment Promotion Board (FIPB) that vets foreign investment proposals.
Finance minister Arun Jaitley had promised this in his February budget. Now such proposals will be scrutinised and cleared by departments concerned.
Briefing reporters after a Cabinet meeting, Jaitley said that in the last three years, 91-95% of foreign direct investment (FDI) into India came through the automatic route. “Only in 11 sectors, there is need for prior government approval which will now be dealt by the department concerned," he said.
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Jaitley said the proposals that are pending before the FIPB will be sent back to departments concerned for approval.
In a series of posts on Twitter, the verified @makeinindia handle under the department of industrial policy and promotion (DIPP) which sets foreign investment rules said timelines would be fixed for approving applications regarding FDI by competent authorities and a rejection by the department concerned has been made difficult as it now will mandatorily require concurrence of DIPP. So will the imposition of additional conditions other than provided in the FDI policy.
“All FDI from Pakistan and Bangladesh and FDI proposals requiring approval in Private Security Agencies and manufacture of small arms to be approved by Ministry of Home Affairs," the @makeinindia handle tweeted.
While foreign investments by non-resident Indians and FDI in retail and export oriented units will be approved by DIPP, FDI in banks will be approved by the Department of Financial Services. DIPP or Department of Economic Affairs will undertake a quarterly review of FDI proposals, the @makeinindia handle said.
Devraj Singh, an executive director at EY India, said the move would help ease the processing of foreign investment approvals. “It will be interesting to see how quickly the line ministries get well versed with the nuances of the FDI policy and maintain consistency/ transparency and continuity, which is paramount for the foreign investors," he added.
Akash Gupt, partner and leader at PwC India, said the new approval mechanism should be made simpler and time-bound to help speed up processes. “Ideally, more and more sectors should be put under automatic route and the FDI compliance should be monitored by respective government departments as part of licence compliance processes," he added.
FDI into India rose 9% to a record $43.5 billion in 2016-17, at a time when global FDI inflows are falling. In the January-March quarter, FDI equity inflows, however, fell 28% to $7.6 billion, data released by the DIPP on Friday showed.
In his budget for 2017-18, Jaitley said since FIPB has successfully implemented e-filing and online processing of FDI applications, the government had now reached a stage where FIPB could be phased out. “We have therefore decided to abolish FIPB in 2017-18," he said.