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Alerts:

Transaction Tax Alert: Abolition of Foreign Investment Promotion Board and Way Forward

08 June 2017

Background

The Union Cabinet, vide a press release dated May 24, 2017, had given its formal approval to the phasing out of the Foreign Investment Promotion Board (‘FIPB’). However, there was no clarity on the revamped approval system for the Foreign Direct Investment (‘FDI’) under Government approval route.

On June 5, 2017, the Government of India issued an Office memorandum sketching the roadmap for processing of FDI applications under approval route, post the FIPB abolition.

The road ahead

  • Subsequent to abolition of FIPB, application for FDI under approval route shall be responsibility of the concerned Administrative Ministries/Departments, as under:

Sector/Activity

Administrative Department/ Ministry

Mining

Ministry of Mines

Defence

Department of Defence Production, Ministry of Defence

Cases relating to FDI in small arms

Ministry of Home Affairs

Broadcasting

Ministry of Information & Broadcasting

Print Media

Civil Aviation

Ministry of Civil Aviation

Satellites

Department of Space

Telecom

Department of Telecommunications, Ministry of Communications

Private Security Agencies

Ministry of Home Affairs

Trading (single & multi brand and food products retail trading)

Department of Industrial Policy & Promotion (‘DIPP’), Ministry of Commerce & Industry

Financial Services not regulated by a regulator or where there is more than one regulator or in respect of which there is doubt about the regulator (As per FDI Policy)

Department of Economic Affairs, Ministry of Finance

Banking (Public and Private) (As per FDI Policy)

Department of Financial Services, Ministry of Finance

Pharmaceuticals

Department of Pharmaceuticals, Ministry of Chemicals and Fertilizers

 

  • Further, the Office memorandum also specifies the approving department for certain categories of FDI proposal, as under:

FDI proposal

 

Approving department

By Non-Resident Indians (‘NRI’) or Export Oriented Units (‘EOU’s) requiring Government approval

 

DIPP

Application for issue of shares for import of capital goods/machinery/equipment (excluding second hand machinery)

 

DIPP

Issue of equity shares for pre-operative/pre-incorporation expenses (including payment of rent, etc)

 

DIPP

Applications from Countries of Concern, requiring security clearance

Sectors under automatic route or activities requiring security clearance - Ministry of Home Affairs;

Sectors under approval route or activities requiring security clearance – nodal Administrative Ministries/Departments in consultation with Ministry of Home Affairs

 

FDI in Core Investment Company or an Indian company engaged only in the activity of investing in the capital of other companies

 

Department of Economic Affairs (‘DEA’), Ministry of Finance

 

Procedural aspects

  • All the pending applications for Government approval shall be transferred to the respective Administrative Ministries/Departments immediately upon receipt thereof.
  • Where there is a doubt about the Administrative Ministry/Department concerned, DIPP, at its discretion, shall identify the Administrative Ministry/Department where the application will be processed.
  • All the past, present and future litigations and liabilities in relation to Government approval as well as RTI applications and appeals pending with FIPB shall be handled by concerned Administrative Ministry/Department as per the sector allocation.
  • Application for seeking Government approval would continue to be filed on existing FIPB portal, oversight of which shall be transferred by DEA to DIPP within 4 weeks.
  • Standard Operating Procedure (‘SOP’) would be developed by DIPP in consultation with Administrative Ministries/Departments/Sectoral regulators for processing of the FDI proposals as well as to ensure consistency and uniformity of approach across sectors.
  • The Administrative Ministry/Departments will seek approval of the Minister-in-charge/Cabinet Committee on Economic Affairs (CCEA) on the application as per existing FDI Policy.
  • Concurrence of DIPP would be mandatory for FDI proposals to be rejected or where approval is proposed subject to additional conditions.
  • Monitoring of compliance of conditions would be the responsibility of concerned Departments.

BDO Comments

Abolition of FIPB is considered to be a good move for the purpose of improving the ease of doing business in India. While there could be teething issues in the transition phase, this administrative change is expected to bring about a faster and transparent FDI approval process, thus attracting more foreign investments. For this purpose, the key aspect would be the design and effective implementation of SOPs which would form basis for the approval.