Processing of FDI proposals: What will the new era hold?

By Kanchan Sinha and Sanya Parmar, Luthra & Luthra Law Offices
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The government of India, through a notification dated 5 June, approved the proposal for phasing out of the Foreign Investment Promotion Board (FIPB). Pursuant to the proposal, the task of granting approval for foreign investments under the country’s foreign direct investment (FDI) policy will now be taken care of by the concerned ministries and departments (authorities).

Kanchan SinhaPartnerLuthra & Luthra Law Offices
Kanchan Sinha
Partner
Luthra & Luthra Law Offices

The notification mentioned that the Department of Industrial Policy and Promotion (DIPP) would lay down a standard operating procedure (SOP), to guide the authorities as regards FDI proposals, and that the SOP would involve the process of inter-ministerial consultations.

Accordingly, on 29 June the DIPP unveiled the SOP, detailing the modus operandi to be followed by the authorities. The key feature of the SOP is the strict and short timelines involved at each step.

Modus operandi

Going strictly by the words of the SOP, a FDI proposal would meet its fate within a span of eight to 10 weeks, in the following manner:

• The FIPB portal will be rechristened as the Foreign Investment Facilitation Portal (FIFP), and will continue receiving FDI proposals.

• Upon filing of the proposals online, they will be forwarded by the DIPP simultaneously to the authorities and to the Reserve Bank of India (for comments from the perspective of the Foreign Exchange Management Act) within two days. The proposals should also be sent to the Ministry of External Affairs (MEA) and the Department of Revenue (DOR) for information. The MEA and DOR should give their comments, if any, directly to the authorities. Proposals that require security clearance should also be sent to the Ministry of Home Affairs.

The SOP stipulates consultation with the DIPP on specific issues requiring clarification from the FDI policy perspective, in which case the DIPP should provide clarifications within 15 days. However the SOP also unequivocally states that such consultation should be need based and not routine.

Consultation with other ministries and departments is also provided for (subject to justification and approval of the secretary concerned), in which case they must upload their comments on FIFP within four weeks (or six weeks for proposals requiring security clearance) from online receipt of the proposal, failing which it would be presumed that they have no comments to offer.

• On receipt of proposal documents, the authorities are to scrutinize them within one week and require the applicant to furnish additional information and/or documents if necessary.

• Upon completion of proposals within six weeks (or eight weeks for proposals requiring security clearance), the authorities should, within the next two weeks, convey their decision to the applicant. In cases of proposals involving equity inflow of more than ₹50 billion (US$780 million), the proposals are to be placed for consideration before the Cabinet Committee on Economic Affairs.

Sanya ParmerAssociateLuthra & Luthra Law Offices
Sanya Parmar
Associate
Luthra & Luthra Law Offices

Analysis

The SOP appears to be a positive change as it fills the void created by the absence of a guideline prescribing a defined step-by-step structure and timelines for disposal of FDI proposals. It is a major step towards ensuring that proposals are not rejected on frivolous grounds, as now the authorities cannot reject a proposal or impose conditions in addition to those stated in the FDI policy without the concurrence of the DIPP.

However, the SOP has certain issues that one cannot overlook. For example, although the SOP cuts down the total time taken for disposing of FDI proposals by outlining strict timelines, these timelines are not binding.

Further, although pending applications are required to be transferred to the authorities, the SOP is silent regarding the timeline triggers for these pending applications.

Indeed, the SOP is a huge step towards boosting foreign investment in India and further bolstering the Ease of Doing Business in India campaign, but one cannot disregard the fact that over a period of more than two decades, the FIPB had gained tremendous expertise in handling the mammoth task of disposing of FDI proposals. In the absence of the FIPB, the effective implementation of the SOP is a story that only time will tell.

Kanchan Sinha is a partner and Sanya Parmar is an associate at Luthra & Luthra Law Offices. The views expressed here are personal. They are intended for general information purposes and are not a substitute for legal advice.

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