Government to widen entry for foreign funds while shuttering FIPB

Source: The Economic Times, Apr 20, 2017

NEW DELHI: The proposed dismantling of Foreign Investment Promotion Board, which vets proposals involving fund inflows from overseas, is likely to be bundled with related policy reforms.

On top of the list is doing away with prior government approval for investments in most sectors, including single-brand retail, which could see dilution of the 30% domestic sourcing clause.

“Contours of the proposed changes to the foreign direct investment policy are almost ready… Non-strategic sectors should be on automatic,” said a senior government official privy to discussions on the matter.

With domestic private investment not picking up, the government is largely counting on foreign funds to speed up infrastructure creation. India needs an estimated $1.5 trillion over 10 years to build infrastructure such as roads, airports and power projects.

The latest round of FDI reforms is aimed at making the process easier for foreign investors.

“The multiple layers in clearance often lead to unnecessary delays,” the official said, justifying the decision to put more sectors on the automatic approval route.

Most sectors have automatic approval for investments up to 49%. Government approval is required for investments in sectors such as telecom services, food products retailing, mining and minerals, multi-brand retail and private security agencies.

In most cases, approval is required for investments exceeding 49%, but in some such as multibrand retailing, approval is needed for any level of investment.

In mining and minerals, 100% FDI is allowed but government approval is required. Many of these sectors could be freed up in the policy review.

Top government officials have already discussed details of the new FDI regime and a call will be taken shortly.

The finance ministry, separately, has moved a draft cabinet note for dismantling FIPB.

The proposal to phase out FIPB in 2017-18 was made in the Budget presented on February 1. Finance minister Arun Jaitley said the government had undertaken substantive reforms in FDI policy over the past two years and more than 90% of the total FDI inflows were now through the automatic route.

Jaitley said FIPB has implemented e-filing and online processing of FDI applications and had reached a stage where it could be abolished.

The Department of Industrial Policy and Promotion has been authorised to vet and recommend foreign investment proposals to the finance minister. The government is keen to remove even that layer by abolishing the need for approvals for most sectors. In such cases, the sector regulators are likely to be charged with ensuring foreign investment is compliant with limits and policy.

RETAIL TO BENEFIT
Foreign direct investment up to 49% in the single-brand retail sector is allowed via the automatic route, without prior approval, but proposals beyond that level require government consent. India allowed 100% FDI in the sector in 2012.

The government is likely to relax the rule and allow investment in single-brand retail under the automatic route.

Single-brand retailers bringing FDI beyond 49% have to adhere to stringent 30% local sourcing norms but sections within the government favour diluting the clause as marquee brands come in completely manufactured form, including packaging.

A call on this would be taken after deliberations as the government is also keen to push manufacturing and job creation in the country.

Equity FDI into India increased 69% to $96.1 billion during October 2014-January 2017 from $57 billion in the July 2012-September 2014 period, commerce minister Nirmala Sitharaman said earlier this month.

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