Budget 2021

Govt abolishes FIPB; more FDI policy easing on anvil

Priya sundarajan | | | Updated on: Feb 01, 2017

The Foreign Investment Promotion Board (FIPB), which vets and approves foreign direct investment (FDI) proposals not cleared through the automatic route, will be abolished in 2017-18, Finance Minister Arun Jaitley has announced.

There would also be further liberalisation of the FDI policy and necessary announcements will be made in due course, the Finance Minister said delivering his speech for Budget 2017-18 on Wednesday.

“More than 90 per cent of the total FDI inflows are now through the automatic route. The FIPB has successfully implemented e-filing and online processing of FDI applications. We have now reached a stage where FIPB can be phased out,” said Jaitley.

While a decision on abolishing the FIPB in 2017-18 has been taken, a roadmap to achieve that is not yet ready. “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,” Jaitley said.

There is also no clarity yet on the alternative mechanism for vetting proposals not on the automatic route.

FDI had increased from ₹ 1,07,000 crore in the first half of last year to ₹ 1,45,000 crore in the first half of 2016-17. This marks an increase of 36 per cent, despite 5 per cent reduction in global FDI inflows, the FM said.

The move is to make it easier for foreign companies to invest in the country. The Finance Minister also said that over the last three years, over 90 per cent of FDI proposals have come through the automatic route because of the substantive measures taken by the government with regard to FDI policy.

“As a result, it makes sense to do away with the FIPB…. We will continue with the reform agenda in this area, though," Jaitley said, presenting the Union Budget.

“The FM’s announcement on abolishing FIPB in 2017-18 is a landmark proposal with a roadmap to be announced over the next couple of months. It will be interesting to see the approval mechanism the Government will put in place for sectors and areas that currently continue to be under approval route such as retail trade, defence and in-kind (non-cash) FDI investments,” said Radhika Jain, Director at Grant Thornton Advisory Pvt Ltd.

“One may see further liberalisation of the policy when the annual consolidated FDI policy circular is released by the DIPP, which is expected in the next two months,” she added.

FIPB is the body that clears proposals of foreign investment up to Rs 5,000 crore

“Liberalising FDI in various sectors is a welcome move. We will wait to see the approval process for sectors where certain caps still exist,” said Rajesh Thakkar, Partner – Transaction Advisory Services, BDO India.

Published on January 12, 2018

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