Thursday, June 24, 2021

Exit of FIPB

The Foreign Investment Promotion Board (FIPB), a symbol of the early stage reforms era, has walked into the sunset. The Union Cabinet’s decision to scrap the 25-year-old regulatory body demonstrates the government’s intention to further liberalise and simplify the procedures regarding foreign investments in tune with the changing times. Clearly, the institution, set up in the 90s, has outlived its utility. In fact, 91-95% of the foreign direct investments don’t fall under the ambit of FIPB now because they come through the automatic route. The sectoral regulation has become more robust, thereby obviating the need for the board. The stage is now set for the government to come out with a notification specifying which ministry or department is responsible for clearing proposals in the 11 sectors where FDI approvals are not through the automatic route. The scrapping of FIPB is expected to reduce government’s intervention, except in rare cases, and create a level-playing field between Indian and foreign players. However, there is a need to handle the transition phase very carefully, especially in terms of processes, timelines and procedures. It is expected that the foreign investment proposals will be considered by the ministry concerned in consultation with the Department of Industrial Policy & Promotion (DIPP), which will soon come out with clear guidelines and operating procedures for their clearance. Some experts have suggested that the RBI is best positioned to act as a nodal agency to review foreign investment proposals. The government must seriously consider the suggestion for putting in place a robust mechanism that involves an RBI-initiated review and reporting to Parliament.

The decision, which comes nearly four months after Finance Minister Arun Jaitley’s promise in the Budget speech, is part of the efforts to promote the ease of doing business and cut red tape. The ministries will be empowered to take independent decisions on investments proposed in their domains in consultation with the DIPP. There were instances of FIPB delaying clearances in the past due to bureaucratic hurdles. The 11 sectors that continue to need approvals include defence, retail and telecom and in sectors where there are concerns related to security, the FDI proposals will also need Home Ministry’s approval. Those over Rs 5,000 crore will continue to require final approval from the Cabinet. In 2016, the government had relaxed FDI norms in single-brand retail, civil aviation, airports, pharmaceuticals, animal husbandry and food products. There is an urgent need to liberalise the archaic land acquisition and labour laws to promote investment flows into the manufacturing sector and also remove cumbersome rules, which often discourage the potential foreign investors.

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