Abolition of FIPB

Note4Students

Creating employment opportunities is a challenge for every reigning government. Indian has ranked 130th in 2017 Ease of Doing Business index.it is important to take necessary actions to transform India into a business friendly destination. This will attract more FDI and create more job opportunities. So abolition of FIPB deserves deeper analysis.

Introduction

The Foreign Investment Promotion Board (FIPB) was a national agency of Government of India, with the remit to consider and recommend foreign direct investment (FDI) which does not come under the automatic route.

It acted as a single window clearance for proposals on foreign direct investment (FDI) in India. The Foreign Investment Promotion Board (FIPB) was housed in the Department of Economic Affairs, Ministry of Finance.

Recent Developments

The Union Cabinet approved phasing out of the 25-year-old Foreign Investment Promotion Board (FIPB)

Successor mechanism

The Department of Industrial Policy and Promotion (DIPP) under the Commerce ministry will be in charge of its successor mechanism.

This includes the old FIPB portal that has now been placed under the DIPP under a new name – the Foreign Investment Facilitation Portal

Henceforth, the work relating to processing of applications for FDI and approval of the Government thereon under the extant FDI Policy and Foreign Exchange Management Act, shall now be handled by the concerned Ministries/Departments in consultation with the Department of Industrial Policy & Promotion (or the DIPP, in the) Ministry of Commerce, which will also issue the Standard Operating Procedure for processing of applications and decision of the Government under the extant FDI policy.

National Security

  1. In cases of applications where there are security concerns, the home ministry’s approval will be required.

Analysis

Reasoning behind the abolition

  1. ‘Maximum Governance and Minimum Government The move to phase out the FIPB is aimed at making India a more attractive FDI destination and increasing FDI inflows by providing greater ease of doing business and promoting the ‘Maximum Governance and Minimum Government’ principle.

Diminished Importance

  1. FIPB was the epitome of license raj, where powerful bureaucrats decided the fate of a foreign investor willing to pump in precious foreign investment into India.
  2. But in today’s more liberalised India, the FIPB’s role had already shrunk considerably, especially after the Narendra Modi government further relaxed FDI norms for many sectors last year.
  3. Currently around 91-95% of FDI inflow happens through the automatic route, adding that there are only 11 sectors (including defence and retail) needing government approval.
  4. The FIPB has successfully implemented e-filing and online processing of FDI applications.

Concerns And Challenges

  1. The Office Memorandum made Department of Industrial Policy & Promotion (DIPP) as the nodal agency for coordinating FDI proposals requiring government approval and entrusted it with the task of preparing and issuing a standard operating procedure (SOP) for processing the FDI applications.
  2. it is encouraging to see that SOP has explicitly provided timelines for all ministries/ departments involved at different stages, there still remains scope where these timelines are not strictly binding
  3. While the cabinet’s decision is seen as a simplification of the existing procedure to seek clearance on FDI proposals, experts have also raised doubts whether line ministries are equipped to take such decisions on an expedited manner.

Liberising norms

  1. Cumbersome rules, not the FIPB, have been responsible for a less than enthusiastic response from foreign investors in some sectors.
  2. For instance, global insurers can hold up to 49% ownership in Indian ventures but only if Indians retain management and control over these entities — this is an onerous definition of control that has inhibited deal-making. Despite allowing 100% FDI in food retail, rules prohibit foreign players from using a small fraction of their shelf space for non-food items, affecting investment plans. This, in a sector that can create millions of jobs and boost farm incomes.
  3. Archaic land acquisition and labour laws continue to make it difficult for large factories to come up.
  4. If the government considers liberalising the norms for foreign investors in the wake of the recent Tata-Docomo dispute, it would go a long way towards creation of a far more stable investor-friendly taxation regime that will bolster investor confidence.

Conclusion

  1. FIPB has been handling the task of approving and vetting FDI proposals for more than 25 years, it will be interesting to see how the new authorities fill its shoes under the new regime.
  2. While initial glitches within the ministry or while coordinating between different designated authorities are expected, DIPP is expected to assume a pro-active approach and hand-holding them to settle down in the new set-up and deliver the expectations of the business community efficiently.
  3. “Abolition of FIPB will propel the inflow of FD”I-comment
  4. “India needs to create a business friendly eco system to reduce the unemployment.” Analyse the statement in the light of abolition of FIPB

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