Twenty-five years after it was set up as the country opened its economy inviting larger foreign investments, the Union Cabinet on Wednesday abolished the Foreign Investment Promotion Board (FIPB) as it had outlived its utility. The government, which first mooted the proposal to abolish this body in this year’s Budget, said on Wednesday that in the last three years 91-95% of foreign investments came under the automatic route.
Briefing reporters, finance minister Arun Jaitley said that there are now only 11 sectors where foreign investments require prior government approval. He said that with the abolition of the FIPB, foreign investments in these 11 sectors would be handled by the respective administrative ministries in consultation with the department of industrial policy & promotion (DIPP), ministry of commerce, which will also issue the standard operating procedure (SOP) for processing of applications and decision of the government under the extant FDI policy.
Jaitley said that proposals in sensitive sectors would require the home ministry’s approval. On the proposals pending with FIPB, he said they will go back to the ministries concerned.
There could also be a provision for quarterly review of pending proposals by the economic affairs secretary and annual review by the finance minister. The FDI proposals above Rs 5,000 crore would continue to be cleared by the Cabinet Committee on Economic Affairs.
Analysts said the proposals of Amazon, Big Basket and Grofers, entailing a total investment of $695 million in the marketing of locally-produced food products, could be among the first to be handled under the new scheme of things.
India’s total FDI inflows, including in equity, touched a record $60.08 billion in the last fiscal.
Devraj Singh, executive director, tax & regulatory services at EY, said, “It will help in ease of processing of foreign investment approval request. Earlier proposals were considered by FIPB in consultation with multiple ministries including the line ministry which were time consuming process.” However, with the new arrangement that only administrative ministry will consider the foreign investment proposal, it will reduce the approval processing time, he said.
FIPB was an inter-ministerial body housed in the finance ministry under the department of economic affairs. It comprised secretaries of various ministries who made recommendations on foreign investment applications.
FIPB was first constituted under the Prime Minister’s Office following economic liberalisation in the early 1990s.