Roadmap - Phasing out the FIPB

Recently, the Finance Minister, Mr. Arun Jaitley, in his Budget Speech on February 1, 2017 had announced the scrapping of the Foreign Investment Promotion Board(FIPB), the inter- ministerial body under the Department of Economic Affairs (DEA), Ministry of Finance, which has been vetting Foreign Direct Investment (FDI) proposals requiring government approval.

Following this announcement, the Union Cabinet chaired by the Prime Minister, Mr. Narendra Modi, also gave its approval on May 24, 2017, to the phasing out of FIPB and instead allowing the concerned administrative Ministries/Departments, in consultation with the Department of Industrial Policy & Promotion (DIPP), Ministry of Commerce, to process the FDI applications requiring government approval.

In quick wake of the above, the Finance Ministry has now issued an Office Memorandum (OM) dated June 5, 207, to all the Ministries/Departments, setting out the roadmap for implementing the abolition of the FIPB. Some of the important highlights of this recently released OM are summarized below:

1. The ministries tasked with clearing foreign direct investment proposals in the 11 sectors that need government nod (mentioned below), would have to take a decision within 60 days, on all the ordinary FDI applications, including those related to Non-Resident Indians/Export-Oriented Units, food processing, single-brand retail trading and multi-brand retail trading proposals.

2. The DIPP, in consultation with the administrative ministries, would come out with standard operating procedures (SOP) to process the FDI applications, thus ensuring consistency of treatment and uniformity of approach. A panel led by the Secretaries of the DEA and the DIPP, would conduct a quarterly review on the pending proposals.

3. FDI proposals by Non-Resident Indians / Export-Oriented Units requiring approval of the Government, as also applications for issue of equity shares for import of capital goods/machinery/equipment or issue of equity shares for pre-incorporation expenses, would be handled by the DIPP.

4. Applications involving investments from "Countries of Concern", requiring security clearance under the Foreign Exchange Management Act and FDI Policy, would be processed by the Home Ministry.

5. The handling of the FIPB portal, through which the FDI applications are filed, would be transferred to the DIPP from the DEA, within 4 weeks. All pending applications with the FIPB would be transferred by the DIPP to the concerned administrative ministries, immediately upon receipt thereof.

6.  Concurrence of DIPP has been made mandatory for rejection of the FDI applications by the concerned administrative ministries.

7.  The 11 notified sectors/activities requiring government approval with the concerned Administrative Ministry/ Department are listed below:

     I. Mining - Ministry of Mines

    II. A) Defence - Department of Defence Production, Ministry of Defence 

       B) Cases relating to FDI in small arms - Ministry of Home Affairs

    III. Broadcasting - Ministry of lnformation and Broadcasting

    IV. Print Media - Ministry of lnformation and Broadcasting

    V. Civil Aviation - Ministry of Civil Aviation

    VI. Satellites - Department of Space

   VII. Telecom - Department of Telecommunications, Ministry of Communications

   VIII. Private Security Agencies - Ministry of Home Affairs

    IX. Trading (Single & multi brand and food products retail trading) - Department of Industrial Policy &      Promotion, Ministry of Commerce & Industry

    X.  A) Financial Services not regulated by a regulator or where there is more than one regulator or in respect of which there is a doubt about the regulator (As per FDI Policy) - Department of Economic Affairs, Ministry of Finance

      B) Banking (Public and Private) (As per FDI Policy) - Department of Financial Services, Ministry of Finance

    XI. Pharmaceuticals - Department of Pharmaceuticals, Ministry of Chemicals and Fertilizers.

The above reforms have been initiated in the hope that Foreign Investors will find India more attractive destination and this will result in more inflow of FDI. The move is also expected to improve the ease of doing business in India, and help in promoting the principle of 'Maximum Governance and Minimum Government'.

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Note: The contents hereof should not be construed as legal opinion. This provides general information existing at the time of preparation and is intended as a news update and ANB Legal neither assumes nor accepts any responsibility for any loss arising to any person acting or refraining from acting as a result of any material contained herein. It is recommended that professional advice be taken based on the specific facts and circumstances. The contents hereof do not substitute the need to refer to the original pronouncements.