The Finance Minister in his budget speech for FY 2017-18 had included a significant proposal of abolishing the Foreign Investment Promotion Board (FIPB) and replace it with a decentralized mechanism at the respective ministry level to examine and approve FDI proposals in India. The proposal was swiftly put into effect on 5 June 2017 through an office memorandum.The Government has issued an elaborate Standard Operating Procedure (SOP) to act as guidelines for the concerned ministries that would be involved in the FDI approval process. As may be gathered from its provisions, the SOP intends to put in place a robust online platform and a time bound framework which is ‘simpler in execution and expeditious in disposal’. It is expected that the SOP would be implemented from 1 July 2017.
COMPETENT AUTHORITIES
Subsequent to the abolition of FIPB, the jurisdiction and powers to examine and grant approval for FDI proposals under the Approval Route are bestowed on various ministries. The SOP has to be read in conjunction with the Office Memorandum F.No. 01/01/FC12017 –FIPB dated 5 June, 2017. As per the memorandum, FDI in 11 sectors of industry that falls under Approval Route has to obtain approval from the Administrative Ministry or Department as specified therein. In the case of applications in which there is a doubt as to which is the concerned Administrative Ministry or Department, Department of Industrial Promotion and Policy (DIPP), Ministry of Trade and Commerce, shall identify the Administrative Ministry/Department where the application will be processed for decision.
Apart from the sector specific allocation of various administrative ministries, the memorandum reserves the administrative control for FDI approval with DIPP and Ministry of Home Affairs in certain specific cases.
Following FDI proposals shall be exclusively dealt with by DIPP and it shall act as the competent authority under the SOP:
1. FDI proposals by Non Resident lndians (NRl) or Export Oriented Units (EOU) requiring approval of the Government.
2. Applications relating to issue of equity shares under the FDI policy under the Government route for import of capital goods, machinery or equipment (excluding second-hand machinery).
3. Applications relating to issue of equity shares for preoperative or pre-incorporation expenses.
Applications involving investments from Countries of Concern (Pakistan and Bangladesh), requiring security clearance as per the extant FEMA, FDI Policy and security guidelines, amended from time to time, shall be processed by the Ministry of Home Affairs. Further, foreign investment in a Core Investment Company would be exclusively processed by the Department of Economic Affairs, Ministry of Finance irrespective of the sector in which the investment is being made.
POWERS OF COMPETENT AUTHORITIES
The application for approval has to be submitted through Foreign Investment Facilitation Portal (FIFP) in the prescribed format. FIFP is the refurbished online platform that was originally launched by the Government in February 2015 as e-FIPB. The Department of Economic Affairs, has transferred the administrative control of the Portal to DIPP (FIPB was under the administrative control of Department of Economic Affairs since 2010).
Upon receipt of the application, the competent authority shall process the application in accordance with the SOP. The SOP would guide the competent authority for processing of the FDI proposals and ensure a consistency of treatment and uniformity of approach across sectors.
A significant provision under the SOP, which would ensure prompt disposal of applications, is the limited scope of consultation powers granted to the competent authorities. Only specific issues that might need clarifications with respect to the provisions of the FDI policy may be referred to the DIPP for clarification. Also, Consultation with any other Ministry or Department will require full justification and approval of the Secretary concerned. Further, it has been specifically provided under the SOP that Competent Authorities shall not replicate an inter-Ministerial body in respective Ministries or Departments to grant approval for foreign investment. Thus, the consultation process for FDI approval has been made ‘need based’, i.e. Consultation of DIPP is not mandatory anymore. However, consultation with DIPP and its concurrence would mandatory under following circumstances:
a) When the proposal is sought to be rejected by the competent authority; or
b) When competent authority proposes to impose additions not provided in the FDI policy to grant approval.
The competent authority shall maintain the records of all applications received and processed by it. The competent authority has also been vested with powers to monitor the compliance of conditions upon which FDI approvals are granted. All past, present and future litigations and liabilities, in various courts and adjudicatory forums in relation to the approvals of the Governments shall be handled by the respective competent authority.
The concerned competent authority shall take stock of pending applications on a monthly basis. The performance of each competent authority and backlog of applications would be quarterly reviewed by a committee under the aegis of DIPP.
FRAMEWORK FOR PROCESSING APPLICATIONS
Applications for FDI approval can be submitted through the portal fipb.gov.in. In case of digitally signed applications, the applicant is not required to submit any physical copy with the competent authority. For applications which are not digitally signed, DIPP would inform the applicant through online communication to submit one signed physical copy of the proposal to the Competent Authority. Applicant would be required to submit the signed physical copy of the application within 5 days of such communication from DIPP. This is a significant change because, under the earlier FIPB regime the applicants were mandatorily required to submit hard copies of application form to the FIPB for its consideration.
After the proposals are filed online, DIPP will identify the concerned Competent Authority and e-transfer the proposal to the concerned Competent Authority within 2 days. The Competent Authority shall, within 1 week, scrutinize the proposal and documents attached therewith and ask the applicant for relevant additional information or documents, if so required.
Application shall also be circulated online, within 2 days, by DIPP to Reserve Bank of India for comments from FEMA perspective. Proposals for foreign investment in sectors requiring security clearance would additionally be referred to Ministry of Home Affairs (MHA) for comments. Further, all proposals would be forwarded to Ministry of External Affairs (MEA) and Department of Revenue (DoR) for information. The comments of MHA shall be provided within 6 weeks. Also, comments from any other ministry/department should be submitted to competent authority within 4 weeks. If the application has been referred to DIPP for clarifications, such comments or clarifications shall be provided within 15 days.
Once the proposal is complete in all respects, the competent authority shall take any of the following steps:
a) Competent authority shall process the application for decision and convey the same to the applicant within six weeks or eight weeks (in cases where comments of Ministry of Home Affairs have been sought from security clearance point of view) from the receipt of the proposal.
b) In case of proposals involving total foreign equity inflow of more than Rs.5000 crores, Competent Authority shall place the same for consideration of Cabinet Committee on Economic Affairs (CCEA) within the above timelines. After the receipt of the decision of Cabinet Committee on Economic Affairs, approval letter shall be issued within 1 week.
Approval or rejection letters will be sent online by the Competent Authority to the applicant, consulted Ministries or Departments and DIPP. The approval letter shall be in the format specified in Annexure-II of the SOP. Calculation of time limits for disposal of applications would be with reference to the date of filing of online application. However, if the signed physical copy is not filed with the Competent Authority within 7 days of the communication from DIPP, the date of filing of the physical application would be reckoned as the reference date for calculation of time limits.
ANALYSIS OF THE SOP
The primary objective of SOP is to facilitate smooth functioning of the FIFP platform. The FIFP platform replaced FIPB as it was found that the latter has become redundant due to 85% FDI inflow happening through automatic route. The SOP has been prepared by the DIPP after wide consultations with various departments and sectoral regulators. It is expected to ensure consistency of treatment and uniformity of approach across sectors, while considering FDI proposals. The competent authorities are required to take a holistic view of the proposals and ensure that the proposals in the applications received are in tandem with the overall economic policy of our country.
It is worth to note that the whole process would take place through the e-governance platform of the Government. The filing of applications, transfer of applications across various ministries or departments and communication of approval or rejection of the proposals are mandated to take place electronically. Such a step would definitely cut costs and time for the applicants and the Government and enables to augment the objective of ensuring ease of doing business.
The SOP has also been drafted in such a manner so as to tackle the menace of ‘red-tapism’. The framework under the SOP provides for clearance of the proposals in a prompt and time bound fashion. Also, the scope of consultation process under the framework is very limited and has been made only ‘need based’ and not mandatory. This helps to avoid situations where departments sideline proposals, which are not crucial to them, without providing comments within a reasonable time frame.
A significant drawback of the SOP is the absence of any appellate mechanism for rejected applications, unlike under the FIPB regime. As per the earlier regime, CCEA had powers to review the decision of the FIPB to reject a proposal. However, such an enabling provision is absent under the SOP. Though, the SOP provides for mandatory reference of applications proposed to be rejected by the competent authority to DIPP, it happens prior to intimation of rejection to the applicant and cannot effectively address the grievances of the applicant. In the absence of an appellate mechanism, rejected proposals may lead to unwarranted litigations that may stress the already overburdened judiciary.
The provisions of the SOP display complete adherence to the theme of ‘Minimum Government and Maximum Governance’ put forth by the Government of India. Proper implementation of the framework under the SOP would ensure ease of doing business in the country and raise the investor confidence. It would provide huge impetus to the Make in India campaign of the Government and contribute, eventually, to a stable economic growth in India.
