The Budget has given a clear indication of the government’s intent to further liberalise policies related to foreign direct investment.
It also seeks to dismantle a two-decades-old body that was formed as a beacon of the economic liberalisation of 1993: the Foreign Investment Promotion Board (FIPB). The 1993 round of reforms under the P.V. Narasimha Rao regime, for the first time, threw the doors open to foreign investors.
One of the major announcements in Finance Minister Arun Jaitley’s Budget speech was the abolition of the FIPB.
The board has offered a single window clearance for applications of prospective foreign investors in sectors falling in the approval route. The board has handled investment proposals worth up to ₹5,000 crore.
The FIPB was formed under the Prime Minister’s Office in the mid-1990s as part of the first round of Indian economic reforms.
It was reconstituted in 1996 and transferred to the Department of Industrial Policy and Promotion.
It was transferred to the Department of Economic Affairs under the Ministry of Finance in 2003, according to its website.
According to government rules, foreign investments in sectors under the automatic route do not require prior approval from the FIPB and are subject to sectoral rules.
“More than 90% of the total FDI inflows are now through the automatic route. The Foreign Investment Promotion Board has successfully implemented e-filing and online processing of FDI applications.”
“We have now reached a stage where FIPB can be phased out. We have therefore decided to abolish the FIPB in 2017-18,” Mr. Jaitley said.
A roadmap for its abolition is to be announced in the next few months.
“Government has shown its clear intent towards fast-tracking inflow of FDI, and the scrapping of FIPB is a notable step that would go a long way in supporting the objective of ease of doing business,” stated Glenn Saldanha, Chairman and Managing Director, Glenmark Pharmaceuticals.
Meanwhile, Mr. Jaitley also stated the government’s plan to pursue more radical liberalisation in Foreign Direct Investment norms.
