Abolition of the foreign investment promotion board as per Finance bill, 2017

1. Abolition of the Foreign Investment Promotion Board
The FIPB offered a single window clearance for applications on Foreign Direct Investment (FDI)
in India that are under the approval route. The sectors under automatic route did not require any prior
approval from the FIPB and are subject to only sectoral laws.
The economic liberalization that began in India in 1991 brought with it a substantial increase in
foreign direct investment (FDI) since then. Those involved in, or following, these developments, since the
1990s will remember the rather significant role played by the Foreign Investment Promotion Board
(FIPB) in approving FDI into the country. Foreign investors (or their Indian partners or investee
companies) had to prepare detailed applications setting out reasons for why their proposal for foreign
investment had to be permitted. The FIPB, comprised of members from various ministries, would
(sometimes minutely) scrutinize the details of each proposal and convey its approval or rejection, as the
case may be. Often no reasons would be forthcoming to support its decision. Lacking any specific
statutory source for its authority, its location was shifted between various ministries before finally being
housed in the Ministry of Finance since 2003.
In order to encourage greater fund flows into the economy, the FM has announced abolition of
the FIPB. While a clear policy outline is yet to be revealed, this is another positive step to liberalize FDI
policy framework and ease regulatory hurdles in attracting investments.
It is in this context that the Finance Minister’s statement during the budget delivered earlier this
year becomes important. In his speech, he noted:
“Our Government has already undertaken substantive reforms in FDI policy in the last two years.
More than 90% of the total FDI inflows are now through the automatic route. The Foreign Investment
Promotion Board (FIPB) 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. A roadmap for the same will be announced in the next few months. In the
meantime, further liberalisation of FDI policy is under consideration and necessary announcements will
be made in due course.”
Abolishing FIPB is a very bold step and makes it easier for foreign investors to invest in India.
In the past due to political reasons, the Department of Industrial Policy & Promotion (DIPP) and
FIPB were put under two separate ministries, making it very cumbersome to get approvals and
clarification on FDI Policy. An investor was squashed between DIPP, FIPB and RBI for any FDI-related
issue. Further, since the FIPB was constituted with officials from various ministries and regulators, there
was zero transparency in the decision-making process.
This government has already liberalised FDI investment and simplified the rules significantly.
Abolishing FIPB will significantly help streamline the process for foreign investment in India, which is
much needed.