The Union Cabinet approves abolition of the FIPB—a move consistent with the Indian government’s ongoing efforts to increase the ease of doing business in the country.

During the union budget speech in February 2017, India Finance Minister Arun Jaitley presented the government’s proposal to phase out the Foreign Investment Promotion Board (FIPB)—the agency responsible for reviewing foreign direct investment (FDI) applications in sectors/activities requiring government approval—in the next financial year. In its meeting of 24 May 2017, the Union Cabinet approved the proposal to abolish the FIPB.

The government’s decision to phase out the FIPB was supported by the substantive reforms made to India’s FDI policy which resulted in more than 90% of investments into India being brought under the “automatic” route, where prior government approval is not required.

Effect on Processing of FDI Applications

With the impending shutdown of the FIPB, FDI approvals will be processed by the relevant government department/ministry in consultation with the Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce and Industry. In this regard, FIPB has stopped considering FDI applications filed after 31 March 2017.

To ensure consistency and uniformity in processing applications for FDI approval and to provide for inter-ministerial consultation where appropriate, the DIPP is expected to issue a Standard Operating Procedure (SOP) in consultation with the relevant departments/ministries/sector regulators. The SOP is expected to set out detailed guidelines to be followed by the sector-specific ministries/departments when processing FDI applications.

Where an FDI application is proposed to be rejected by the relevant department/ministry or approved subject to certain conditions (in addition to those set out in the FDI policy), concurrence of the DIPP will be mandatory. The concerned department/ministry also will be responsible for monitoring compliance with the conditions of the FDI approvals.

The following departments/ministries will be responsible for processing applications for FDI approval in the following sectors that require government approval:

Sl. No.

Sector/Activity

Ministry/Department

1.

Telecom

Department of Telecommunications, Ministry of Communications

2.

Single- and multi-brand retail trading

DIPP, Ministry of Commerce and Industry

3.

Retail trading in food products

DIPP, Ministry of Commerce and Industry

4.

Pharmaceuticals (brownfield)

Department of Pharmaceuticals, Ministry of Chemicals and Fertilizers

5.

Public and private banking

Department of Financial Services, Ministry of Finance

6.

Civil Aviation

Ministry of Civil Aviation

7.

Financial services not regulated by a regulator;

where there is more than one regulator;

or where there is doubt as to the applicable regulator

Department of Economic Affairs, Ministry of Finance

8.

Print Media

Ministry of Information and Broadcasting

9.

Broadcasting

Ministry of Information and Broadcasting

10.

Satellites

Department of Space

11.

Defence

Department of Defence Production, Ministry of Defence

12.

Mining

Ministry of Mines

13.

FDI in small arms

Ministry of Homes Affairs

14.

Private Security Agencies

Ministry of Home Affairs

Where an applicant is unsure which ministry/department is responsible for processing an application for FDI approval, the DIPP will assist in identifying the appropriate department/ministry.

Takeaways

The abolition of the FIPB is in line with the government’s efforts to increase the ease of doing business in India. Whether this translates into practice largely will depend on the expected SOP guidelines and the effectiveness of the various departments/ministries in processing FDI applications under their respective purviews.