Curtains coming down on FIPB, but new mechanism may need hand-holding

DIPP is likely to be the key agency that will pilot foreign direct investment (FDI) approvals through a process of inter-ministerial consultation

April 12, 2017 / 01:47 AM IST

India's plans to replace the two decades-old Foreign Investment Promotion Board (FIPB) with a new mechanism to vet overseas investment proposals may take longer than expected, with work still underway on making the transition hassle-free without compromising on standard procedural checks.

A Cabinet approval to wind up FIPB is expected to come by this month-end that will also lay down the transition roadmap.

The Department of Industrial Policy and Promotion (DIPP) is likely to be the key agency that will pilot foreign direct investment (FDI) approvals through a process of inter-ministerial consultation.

“The responsibility of handling FDI proposals will not be left only to a single ministry and the concerned sector regulator. Some amount of ‘handholding’ is required after the transition,” a senior government official told Moneycontrol.

The move will avoid the need for multiple clearances.


A group of officials from Finance Ministry, External Affairs Ministry, DIPP is working out a way, such that there will be a quarterly review of the new mechanism even after abolishing FIPB, the official said.

FIPB, an inter-ministerial body, is the current nodal agency responsible for processing of foreign direct investment (FDI) proposals.

Finance Minister Arun Jaitley had announced in the Budget for 2017-18 the government’s intent to abolish the FIPB and replace it with a new system as part of the government’s broader strategy to ease FDI rules, remove procedural delays and the turn India into a global investment hotspot.

Along with DIPP, it will be the responsibility of relevant administrative ministry, department or the appropriate regulator to handle foreign investment in sectors that need government nod.

The government has already finalised a Cabinet note defining a new mechanism to approve overseas investment applications.

“DIPP will have to do some sort of coordination for handling FDI cases. It will have to bring out a SOP (standard operating procedure) to view this,” the official said.

The ministries will need to be sensitised to certain procedures such as sorting out cases, if there suspicion of terror financing or undisclosed money, thereby doing a thorough background check of the promoter that wants to invest.

“This requires a certain degree of expertise,” the official said, explaining that official handling FDI proposals should know how to deal with issues pertaining to the case or even raise queries on a real-time basis through a dedicated online portal.

Since 2015, the FIPB Secretariat has been receiving and processing online applications, thereafter placing them before FIPB for consideration.

Currently, more than 90 percent of the total FDI inflows pour in through the automatic route, while FIPB or Cabinet approval is required in others.
first published: Apr 11, 2017 03:43 pm

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