Date June 8, 2017
Government releases office memorandum setting out roadmap post-FIPB abolishment

The Foreign Investment Promotion Board (FIPB) Section of the Department of Economic Affairs (DoEA) of the Government of India’s (GoI) Union Ministry of Finance (MoF) published an office memorandum dated 5 June 2017 (OM) setting out the roadmap in relation to the post-FIPB abolishment period.

The OM comes in the backdrop of the Union Cabinet of the Government of India chaired by Prime Minister Narendra Modi giving its approval for phasing out of the FIPB on 24 May 2017, pursuant to Union Finance Minister Arun Jaitley announcing in his budget speech earlier this year that the FIPB would be abolished in the financial year 2017-2018.

In February 2015, the GoI had launched a new secured website, i.e. fipb.gov.in (FIPB Portal) on which all applications that sought the approval of the GoI were filed. The OM reveals that once the FIPB has been abolished, the management and responsibility of running the website will vest with the Department of Industrial Policy and Promotion (DIPP). The concerned ministries/ departments shall be granted access to the FIPB Portal, from where the respective applications may be downloaded and processed by the administrative ministries/ departments. Further, all applications pending with the FIPB Portal as on the date of abolition of the FIPB shall be transferred to the respective ministry/ department by the DIPP immediately once received.

The OM also reveals that applications requiring the approval of the GoI will continue to be received by the FIPB portal. However, the DoEA is required to transfer oversight of the same to the DIPP within four weeks. Once the foreign direct investment (FDI) application has been received, the ministry/ department (as the case may be) is required to process the same.

Setting out that post-abolishment of the FIPB, the work of granting government approval(s) for foreign investment under the extant Foreign Direct Investment Policy, as amended from time to time (FDI Policy) would vest with the concerned ministries or departments, the OM has listed the following eleven departments for the following sectors requiring government approval for FDI:

Sr. No. Sector/ Activity Administrative Ministry/ Department
1. Mining Ministry of Mines
2. Defence Department of Defence Production of the Ministry of Defence
2A. Cases relating to FDI in small arms Ministry of Home Affairs (MHA)
3. Broadcasting Ministry of Information and Broadcasting
4. Print Media Ministry of Information and Broadcasting
5. Civil Aviation Ministry of Civil Aviation
6. Satellites Department of Space
7. Telecom Department of Telecommunications of the Ministry of Communications
8. Private Security Agencies MHA
9. Trading (single and multi-brand, and foot products retail trading) DIPP of the Ministry of Commerce
10A. Financial services not regulated by a regulator or where there is more than one regulator or in respect of which there is a doubt about the regulator Department of Economic Affairs of the Ministry of Finance
10B. Banking (public and private) Department of Financial Services of the MoF
11. Pharmaceuticals Department of Pharmaceuticals of the Ministry of Chemicals and Fertilizers

A standard operating procedure (SOP) will be developed by the DIPP in consultation with administrative ministries/ departments/ sector regulators in order to guide the administrative ministries/ departments (as the case may be) for processing the FDI proposals, and ensuring a consistency of treatment and uniformity of approach across sectors.

The SOP shall involve the process of inter-ministerial consultations for the examination of FDI proposals, where necessary. The SOP will also recognise that FDI applications, including those related to non-resident Indians (NRI)/ export oriented unit(s) (EOU), food processing, single brand retail trading and multi brand retail trading, should ordinarily be decided in 60 (sixty) days. Further, the ministry/ department will seek the approval of the minister-in-charge/ Cabinet Committee on Economic Affairs on the application as per the existing FDI Policy.

The OM reveals that presently, there are 4,500 (four thousand five hundred) files with the FIPB secretariat. The files, which are stated to be important from a reference, record, examination by investigating agency(ies) point of view will be transferred to the concerned ministry/ department by the FIPB secretariat.

Additionally, the OM sets out the following:

1. FDI proposals by NRIs or EOUs that require the approval of the GoI would be dealt with by the DIPP, and that the DIPP will continue to be the administrative ministry for the aforesaid purpose;

2. Applications that relate to issue of equity shares (a) under the FDI Policy under the government route for import of capital goods/ machinery/ equipment, which does not include second-hand machinery; and (b) for pre-operative/ pre-incorporation expenses, including payments of rent, etc. will be handled by the DIPP;

3. Applications that involve investments from ‘Countries of Concern’ that require security clearance as per the FDI Policy and the Foreign Exchange Management Act, 1999 shall be processed by the MHA. The OM clarifies that only those investments which fall under the automatic route sectors/ activities that require security clearance may be processed by the MHA, whereas cases that pertain to other approval route sectors/ activities that require security clearance may be processed by the nodal ministries/ departments (as the case may be) in consultation with the MHA;

4. FDI applications for core investment company(ies) or an Indian company that is engaged only in the activity of investing in the capital of other Indian company(ies) shall be processed by the MoF’s DoEA, irrespective of the sector in which the investment is being made;

5. For applications where a doubt exists as to the administrative ministry concerned, the DIPP is required to identify the ministry/ department where the application has to be processed;

6. The concurrence of the DIPP would be mandatory with reference to FDI applications which are proposed to be rejected by the competent authority or where approval is proposed by the competent authority subject to additional conditions not specified in the FDI Policy;

7. The monitoring of the compliance of conditions under FDI approvals, including the past cases approved by the FIPB, will be done by the concerned ministries/ departments;

8. A joint quarterly review meeting will be undertaken by a committee co-chaired by the Secretary of the DoEA and the Secretary of the DIPP on pendency of proposals with the GoI. The secretary of the concerned administrative ministry/ department may also be invited to attend the meeting;

9. Past, present and future litigations and liabilities, in various courts and adjudicatory forums in relation to the approvals of the GoI shall be handled by the respective ministry/ department. An affidavit to such an effect will be filed in all such pending and ongoing cases; and

10. Right to information applications and appeals pending with the FIPB secretariat shall be transferred to the respective administrative ministry/ department.

The OM may be accessed at the following link:

http://www.fipb.gov.in/Forms/OMabolitionFIPB.pdf