India streamlines FDI approvals

On May 24, India’s union cabinet decided to abolish the Foreign Investment Promotion Board (FIPB), which for 25 years has been a single window for clearing FDI proposals requiring the government’s approval.

This major FDI reform was indicated in the union budget for 2017-18 on February 1, 2017, to streamline the processing of investment proposals. The rationale for this reform is that 90%-95% of FDI proposals come under the automatic route, leaving proposals in only about 11 sectors for FIPB approval. The finance ministry has been given four to six weeks to wind up the FIPB.

The thinking within the government is to create a new mechanism to enable various administrative ministries to clear FDI proposals in the 11 sectors in consultation with the Department of Industrial Policy and Promotion (DIPP). In print media, the government’s nod is needed for proposals up to a 26% limit.

In defence, private sector banking, single-brand retail trading, telecom services, air transport services and private security agencies approval is required for FDI beyond 49%. An official nod is needed for brownfield FDI beyond 74% in pharmaceuticals and up to 100% in mining, food product retail and satellites.

The DIPP is expected to issue within a four- to six-week timeframe the standard operating procedure for the processing of FDI applications by the administrative ministries. There is also provision for a quarterly review of pending FDI proposals by the finance ministry’s department of economic affairs or the DIPP, and an annual review by the finance minister.

Although the FIPB is on the way out, the home ministry will vet FDI proposals with security implications, while those above Rs50bn ($776m) will continue to be cleared by the cabinet committee on economic affairs.

To sustain the uptrend in FDI inflows (which touched $60.1bn in 2016-17), the Indian government is also thinking of further liberalising sectoral caps in several sectors. This includes putting single-brand retail FDI on the automatic track entirely, and allowing FDI in multi-brand retail beyond only food products.

Another politically sensitive decision could entail allowing FDI in print media beyond the 26% limit, up to 49%. “The final draft cabinet note regarding further opening up FDI is being prepared after incorporating inputs from all stakeholders in the government,” a senior official told India’s Business Standard. 

N Chandra Mohan is an economics and business commentator based in New Delhi.