Policy reforms to follow dissolution of FIPB board; ease foreign flows into country

The proposal to abolish the Foreign Investment Board (FIPB) is likely to be accompanied with number of policy reforms. The decision to dismantle the board – that looks at overseas fund flows proposal to India – was announced by Finance Minister Arun Jaitley in his Budget presentation.

“Contours of the proposed changes to the foreign direct investment policy are almost ready... Non-strategic sectors should be on automatic,” a government official, privy to details, told the Economic Times.

According to a media report, the clause for prior government approval for investment in most sectors will be done away with. This is likely to include single-brand retail sector, which in turn will remove the 30 percent domestic sourcing clause.

The idea behind dissolution of FIPB is avoiding delays in clearances for foreign funds. More sectors on automatic route will help ease cash flow into the country.

While most sectors already have automatic approval up to 49 percent, certain sectors like food product retailing, telecom, multi-brand retail, private security agencies and mining minerals need government approval.

On back of reforms in the foreign direct investment (FDI) policy, more than 90 percent of the flows are through the automatic route already. Post the policy review, many of these sectors will be freed up.

The finance ministry has already moved a draft cabinet note for dissolution of FIPB.

The government is counting on foreign fund flows to speed up infrastructure development as the domestic private investment continues to be sluggish.

According to a top US trade official, India continues to be an important destination for foreign funds. In the FDI Confidence Index, India jumped up a place to 8 this year and is seen as becoming a favorite soon with its focus on becoming an open market country.