Foreign Direct Investment (FDI)-
Foreign direct investments (FDI) are investments made by one company into another company located in another country. Generally, FDI takes place when an investor establishes foreign business operations or acquires foreign business assets, including establishing ownership or controlling interest in a foreign company. The key feature of foreign direct investment is that it establishes either effective control of or at least substantial influence over the decision-making of a foreign business.

Purpose of establishing FIFP portal-
Initially applications for FDI approval falling under the Government Approval Route were processed by FIPB and then the application went through multiple bodies/ministries for approval. This was a time-consuming process since multiple administrative bodies were involved. Thus, in order to provide expeditious disposal of FDI application the new regime was introduced.

This new regime brought a constructive change which is cited below:

• For this a single window for processing the FDI applications was introduced, in form of an online portal i.e. Foreign Investment Facilitation Portal (FIFP).
• The concerned Administrative Ministry/Department shall process the application as per the Standard Operation Procedure (SOP).

 
Process for securing approval for FDI proposals-
An applicant should submit the FDI proposal on FIFP portal in the prescribed format and upload documents.

• Department of Industrial Policy and Promotion (DIPP) will identify the Administrative Ministry/Department (competent authority) concerned and e-transfer the proposal to it within 2 days.
• If an application is digitally signed, physical copy is not required to be submitted. Otherwise, DIPP would inform the applicant to submit a signed physical copy of the application to the competent authority.
• Competent authorities have been enlisted in the SOP.
• In respect of sectors/activities which are presently under automatic route but required government approval earlier, Administrative Ministry/Department concerned would be competent authority for the grant of post facto approvals for FDI. In case of any doubt, DIPP shall identify the Administrative Ministry/Department where the application will be processed for decision.
• Competent authorities shall not replicate an inter-ministerial body in respective Ministries or Departments to grant approval.
• Within 2 days of receipt of a proposal, DIPP shall circulate it to Reserve Bank of India (RBI) for its comments from Foreign Exchange Management Act perspective. Proposals in sectors requiring security clearance would additionally be referred to Ministry of Home Affairs. All proposals would be forwarded to Ministry of External Affairs — the requirement of sending all proposals to Department of Revenue has been done away with. These Ministries’ comments will be given directly to the Ministry/Department concerned.
• Investments in broadcasting, telecom, satellites, private security agencies, defence, civil aviation, certain cases in mining and minerals and investments from Pakistan and Bangladesh require security clearance from Ministry of Home Affairs.
• Specific issues of proposals which require clarification on FDI policy may be referred to DIPP, such consultation will be requirement basis not on routine basis. DIPP will provide clarification within 15 days on such issues. Similarly, consultation with any other Ministry or Department will require full justification.
• Ministries/Departments consulted on any proposal are to upload their comments on FIFP portal within 4 weeks; else, it would be deemed that they have no comments. Ministry of Home Affairs should provide comments within 6 weeks or inform the expected time-frame for providing its comments. Competent authority shall verify the application and seek further information/documents, if required, within 1 week. The SOP expects the scrutiny and comments from all Ministries concerned within 6 weeks and intimation of approval/rejection within next 2 weeks.
• Proposals involving FDI inflow of more than Rs 50 billions should be placed before the Cabinet Committee on Economic Affairs (CCEA) within the above timelines. Approval letter should be issued within 1 week of CCEA decision.
• Where competent authority proposes to reject an FDI proposal or in cases where additional approval conditions are to be stipulated, the competent authority must seek DIPP’s concurrence within 10/12 weeks from the receipt of proposal.

 
For the first time, the SOP also prescribed a time-frame for disposal of applications. Time only will tell whether these timelines are strictly adhered to. The abolition of FIPB and setting up of the new approval system is expected to reduce the existing bureaucratic and regulatory burden for foreign investors, and decrease transaction timelines for investments in India.

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