In the wake of 1991 wave of economic reforms FIPB was formed under the Prime Minister’s Office. In 1996, it was put under the control of Department of Industrial Policy and Promotion (DIPP) and, in 2003, the FIPB was reconstituted and placed in Department of Economic Affairs (DEA) under the Ministry of Finance, India. However, the successive liberalisation in the FDI Policy of India has somewhat diminished the role of FIPB to a large extent.
FIPB was a national agency of Government of India, with the remit to consider and recommend foreign direct investment which does not come under the Automatic route. It was an inter-ministerial group which acted as a single window clearance of proposals for foreign direct investment in India.
The recommendations of the FIPB were approved through a 3-tier approval mechanism, viz. FIPB as a committee of senior officials to examine and make recommendations; Empowered Committee on Foreign Investment (ECFI) chaired by the Finance Minister for deciding on the recommendations of the FIPB for projects in which the total investment in the project was up to Rs. 300 crores; and the Cabinet Committee on Foreign Investment (CCFI) for deciding on the recommendations of the FIPB for projects in which the total investment was more than Rs. 300 crores.
The Foreign Investment Promotion Board (FIPB), housed in Department of Economic Affairs, Ministry of Finance is responsible for processing of FDI proposals and making recommendations for Government approval. The Policy, Press Notes and other guidelines formulated by Department of Industrial Policy and Promotion are considered as the basis of the FIPB decisions.The Minister of Finance who is in-charge of FIPB would consider the recommendations of FIPB on proposals with total foreign equity inflow of and below Rs. 3000 crores. The recommendations of FIPB on proposals with total foreign equity inflow of more than Rs. 3000 crores would be placed for consideration of Cabinet Committee on Economic Affairs (CCEA).
WHERE STILL NO FRESH APPROVAL REQUIRED
As per FDI policy,2015, Companies does not require fresh prior approval for bringing in additional foreign investments into the same entity are as follows:
1. Entities the activities of which had earlier required prior approval of FIPB/CCFI/CCEA and which had, accordingly, earlier obtained prior approval of FIPB/CCFI/CCEA for their initial foreign investment but subsequently such activities/sectors have been placed under automatic route;
2. Entities the activities of which had sectoral caps earlier and which had, accordingly, earlier obtained prior approval of FIPB/CCFI/CCEA for their initial foreign investment but subsequently such caps were removed/increased and the activities placed under the automatic route; provided that such additional investment along with the initial/original investment does not exceed the sectoral caps; and
3. Additional foreign investment into the same entity where prior approval of FIPB/CCFI/CCEA had been obtained earlier for the initial/original foreign investment due to requirements of Press Note 18/1998 or Press Note 1 of 2005 and prior approval of the Government under the FDI policy is not required for any other reason/purpose.
4. Additional foreign investment into the same entity within an approved foreign equity percentage/or into a wholly owned subsidiary.
Finance Minister of India in his budget speech on February 1 announced the abolition of FIPB, which comes under the finance ministry’s Department of Economic Affairs as more than 90 percent of FDI proposals today are coming through automatic route. As per the proposed system the respective ministries would take care of FDI proposal and the government will soon come up with the standard operating procedures for clearing FDI proposals.
However, FDI proposals above Rs 5000 crore would continue to be cleared by the Cabinet Committee on Economic Affairs and further a mechanism will be in place to deal with foreign direct investment in sensitive sectors.
FIPB’s powers has gone down considerably in the current government time. As in June 2016 government relaxed FDI norms in single-brand retail, civil aviation, airports, pharmaceuticals, animal husbandry and food products, therefore these sectors do not require approval of FIPB and that is why with this dismantling of FIPB only 11 sectors now needing approval.
WHY FIPB NEEDED?
- In the absence of FIPB, would the ministries be able to handle the matter efficiently as FIPB did is still under question.
- It had more than two decades of experience in understanding the implications of the proposals under FDI, how will that be transferred to ministries after scrapping of FIPB.
- FIPB provided on-table discussion platform among different ministries, which will be a biggest missing factor after its abolition.
There might be several other doubts which may arise in our minds, but we should approve the fact that dismantling Foreign Investment Promotion Board is a very bold and significant step by the Government of India. It gives a clear picture of the government’s intent to reduce the intervention except where is absolutely required and thus provide the investors whether local or foreign a level playing field with equal opportunities as far as possible.