Ministries have the right to reject FDI proposals, DIPP clarifies

The right to reject a foreign direct investment proposal in a sector vests with the designated administrative ministry and not the Department of Industrial Policy & Promotion. This is despite a provision in the rules that states that the DIPP’s “concurrence shall compulsorily be sought’’, a senior government official has clarified.

While the standard operating procedures (SOP) for processing FDI proposals under the new approval mechanism specifies that in case an administrative ministry decides to reject an application, it has to compulsorily seek the concurrence of the DIPP within six-eight weeks of receipt of the proposal, the official said this does not mean that the DIPP will have the power to over-ride the decision. The new FDI approval mechanism follows the winding up of the Foreign Investment Promotion Board, an inter-ministerial body which cleared proposals not under the direct approval route, earlier this year.

“The SOP should not be interpreted in a way that projects the DIPP as the supreme arbitrator. While the DIPP can, in certain cases, examine a FDI proposal that has been rejected, it does not mean that it can take away the power of decision making from the administrative ministry,” the official told BusinessLine . However, if an administrative ministry tries to impose additional conditions on investors that are not provided for under the existing FDI law, the DIPP could take up the matter. “The idea behind the provision is that if there is to be more regression brought into the FDI policy, there is a need for wider consultations. Our approach to FDI is to open up and make it simpler and not vice versa,” the official said.

The DIPP, which is to shortly come up with the next consolidated report of press notes on FDI rules, remains the nodal Ministry for FDI. While all FDI proposals are to first come to the DIPP, it has to disseminate the proposals to Ministry/Department concerned in two days’ time.

The DIPP itself is the administrative ministry for the retail sector (single brand, multi-brand, food), FDI from NRIs, application relating to issue of equity shares under the FDI policy under the government route for import of capital goods/machinery/equipment and for pre-operative/pre-incorporation expenses.

FDI in other sectors such as telecom, defence and IT fall under the purview of the respective Ministries and Departments.

According to government figures, more than 90 per cent of FDI in the country is already flowing through the automatic route as two successive rounds of liberalisation in rules has lifted restrictions in most sectors.

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