True to the intent expressed in the last annual budget, Finance Minister Arun Jaitley has abolished the Foreign Investment Promotion Board (FIPB) that has been vetting foreign investment proposals that exceeded Rs 3,000 crore. Introduced in the wake of liberalization, the FIPB had lost its value with nearly 95 per cent of FDI coming through the automatic route in recent years. Only in 11 sectors, there was need for prior government approval which will now be dealt with by the department concerned. The Finance Minister believes that the scrapping of FIPB will reduce red tape and boost the ease of doing business in India. Jaitley said the proposals that are pending before the FIPB will be sent back to departments concerned for approval. Timelines would be fixed for approving applications regarding FDI by competent authorities and a rejection by the department concerned has been made difficult as it now will mandatorily require concurrence of the Department of Industrial Policy and Promotion (DIPP). If properly implemented, the new initiative is expected to streamline the process of FDI approvals, and thereby boost FDI flows into the country but the Finance Minister would have to guard against the old ills of red tape and bureaucratic obstructionism creeping in.
All FDI from Pakistan and Bangladesh and FDI proposals requiring approval of private security agencies and manufacture of small arms will require to be approved by Ministry of Home Affairs. While 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. DIPP or Department of Economic Affairs will undertake a quarterly review of FDI proposals. It is heartening that FDI into India rose nine per cent to a record $43.5 billion in 2016-17 at a time when global FDI inflows are falling. In the January-March quarter, FDI equity inflows, however, fell 28 per cent to $7.6 billion. In his budget for 2017-18, Jaitley had said since FIPB has successfully implemented e-filing and online processing of FDI applications, the government had now reached a stage where FIPB could be phased out. Whether the scrapping of FIPB will improve the ease of doing business will be put to test soon. The government would indeed have to keep a close watch to see that the liberal measure and decentralization of sanctioning authority does not lead to abuse.