Centre approves phasing out of 25-year-old FIPB

Economic Affairs Foreign Investment

Cabinet has decided to abolish Foreign Investment Promotion Board (FIPB).
This decision is taken by the government because in the last three years 91-95 per cent of foreign funds came via automatic route.
Now there are only 11 sectors where foreign investments require prior government approval.
After 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.
The proposals in sensitive sectors would require the home ministry’s approval.
The FDI proposals above Rs 5,000 crore would continue to be cleared by the Cabinet Committee on Economic Affairs.
Foreign investments by non-resident Indians and FDI in retail and export oriented units will be approved by DIPP, FDI in banks will be approved by the Department of Financial Services.

About FIPB:

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.

Analysis:

Over 90% of the foreign direct investment (FDI) is coming through automatic route. In such cases FIPB has no significant role.
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.
In case of FDI under approval rout, FIPB offers a single window clearance. The sectors under automatic route do not require any prior approval from FIPB and are subject to only sectoral laws. Over the years, increasing liberalisation of the country’s FDI regime has resulted in more and more FDI through the automatic route.
The FIPB has lost its erstwhile pre-eminence and the discretionary power with its bureaucrats doesn’t inspire much confidence within foreign investors. Hence government wants to abolish it.

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