India Abolishes FIPB. What Does it Mean for Foreign Investors?

June 20, 2017 Posted by India Briefing Reading Time: 4 minutes

By Bradley Dunseith

On May 24, India’s Union Cabinet effectively eliminated the foreign investment promotion board (FIPB) – established 25 years ago as a single-window clearance for all foreign direct investment (FDI).

India’s regulatory landscape has undergone some major overhauls since the FIPB was first created: between 91 and 95 percent of FDI now comes through the ‘automatic route’ while only 11 sectors still require government approval.

In this article, we explain the new regulatory landscape for foreign investment that the FIPB previously governed.

Implications of the FIPB’s dissolution

With the FIPB having wound up, the Department of Industrial Policy and Promotion (DIPP) will now direct FDI proposals that require government approval to the concerned federal ministry or department.

The DIPP will release a set of standard operating procedures (SOP) for ministries now tasked with approving FDI requests. Though not yet finalized, the DIPP’s SOP will include:

The creation of an optimized 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.

Furthermore, 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 – a provision that will ease doing business in India.

The Ministry of Home Affairs (MHA) will be in charge of clearing any ‘sensitive’ proposals (such as FDI into private security agencies or from ‘countries of concern’).

The Department of Economic Affairs will process cases in which FDI proposals do not neatly fit into the mandate of a specific ministry or department.

In light of the FDI transition policy, the FIPB is currently not considering FDI proposals submitted after March 31, 2017.

Eliminating the FIPB: Bureaucratic streamlining or administrative maneuvering?

Finance Minister Arun Jaitley rationalized scrapping the FIPB as a way of bypassing red tape and improving the ease of doing business in India – the very same rationale that launched the FIPB 25 years earlier.

Despite these new changes, bureaucrats will still be responsible for approving FDI proposals. There has, as yet, been no announcement on increasing the capacity for concerned departments and ministries now charged with processing FDI proposals.

Ultimately, India’s FDI regulations landscape remains complex; federal government departments and ministries will require specialized knowledge to efficiently process incoming proposals.

Moreover, the scrapping of the FIPB will have no impact on the vast majority of India’s FDI categorized under the ‘automatic route.’

Finally, foreign investors should monitor how the DIPP implements this transition. Moving FDI approval authority from a single clearance window to a cluster of large bureaucratic bodies can be counterproductive no matter how it is pitched by the government.

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