FIPB APPROVALS

PRESENTED BY -

WHAT IS FIPB ALL ABOUT

The Foreign Investment Promotion Board (FIPB) is a government body that offers a single window clearance for proposals on Foreign Direct Investment (FDI) in India that are not allowed access through the automatic route. FIPB comprises of Secretaries drawn from different ministries with Secretary, Department of Economic Affairs, MoF in the chair. This inter-ministerial body examines and discusses proposals for foreign investments in the country for sectors with caps, sources and instruments that require approval under the extant FDI Policy (prescribed vide Circular 2 of 2011)on a regular basis.

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The Minister of Finance, considers the recommendations of the FIPB on proposals for foreign investment up to 1200 crore. Proposals involving foreign investment of more than 1200 crore require the approval of the Cabinet Committee on Economic Affairs (CCEA).

What is the FIPB?

FIPB is a competent body to consider and recommend Foreign Direct Investment (FDI), which do not come under the automatic route The FIPB has been reconstituted as under :

1) Secretary, Department of Economic Affairs :Chairman 2) Secretary, Department of Industrial Policy & Promotion :Member 3) Secretary, Department of Commerce :Member 4) Secretary (Economic Relations), Ministry of External Affairs :Member

How does a foreign company invest in India?

India's foreign trade policy has been formulated with a view to invite and encourage FDI in India.The Reserve Bank of India has prescribed the administrative and compliance aspects of FDI. A foreign company planning to set up business operations in India has the following options: 1:investment under automatic route; and 2:investment through prior approval of Government

Procedure under automatic route:

FDI in sectors/activities to the extent permitted under automatic route does not require any prior approval either by the Government or RBI. The investors are only required to notify the Regional office concerned of RBI within 30 days of receipt of inward remittances and file the required documents with that office within 30 days of issue of shares to foreign investors.

List of activities or items for which automatic route for foreign investment is not available, include the following: 1. Banking 2. NBFC's Activities in Financial Services Sector 3. Civil Aviation 4. Petroleum Including Exploration/Refinery/Marketing 5. Housing & Real Estate Development Sector for Investment from Persons other than NRIs/OCBs. 6. Venture Capital Fund and Venture Capital Company 7. Investing Companies in Infrastructure & Service Sector 8. Atomic Energy & Related Projects 9. Defense and Strategic Industries 10.Agriculture (Including Plantation) 11.Print Media 12.Broadcasting 13.Postal Services

Procedure under Government approval:

FDI in activities not covered under the automatic route, requires prior Government approval and are considered by the Foreign Investment Promotion Board (FIPB). Approvals of composite proposals involving foreign investment/foreign technical collaboration are also granted on the recommendations of the FIPB. Application for all FDI cases, except Non-Resident Indian (NRI) investments and 100% Export Oriented Units (EOUs), should be submitted to the FIPB Unit, Department of Economic Affairs (DEA), Ministry of Finance. Application for NRI and 100% EOU cases should be presented to SIA in Department of Industrial Policy & Promotion.

Government route means that investment in the capital of resident entities by nonresident entities can be made only with the prior approval from FIPB, Ministry of Finance or SIA, DIPP as the case may be.

Approval by FIPB:
A proposal to be made to FIPB which studies the project and conveys its decision within 30 days of submitting application. Preference is given to projects in high priority industries.

Automatic approval: RBI accords automatic approval for all industries for foreign technology collaboration agreements subject to: 1. The lump sum payments not exceeding US$ 2 million 2. Royalty payable is limited to 5 per cent for domestic sales and 8 per cent for exports subject to total payment of 8 per cent on sales over a 10-year period. 3. The period for payment of royalty not exceeding 7 years from the date of commencement of commercial production, or 10 years from the date of agreement whichever is earlier.

FIPB Route: For the following categories, Government approval

is necessary: 1. Proposals attracting compulsory licensing. 2. Items of manufacture reserved for the small-scale sector. 3. Proposals involving any previous joint venture or technology transfer /trade mark agreement in the same or allied field in India. 4. Extension of foreign technology collaboration agreements (including those cases which may have received automatic approval in the first instance). 5. Proposals not meeting any or all of the parameters for automatic approval.

The different components of foreign technology collaboration such as technical know-how fees, payment for design and drawing, payment for engineering service and royalty are eligible for approval through the automatic route, and by the Government. Payments for hiring of foreign technicians, deputation of Indian technicians abroad, and testing of indigenous raw material, products, indigenously developed technology in foreign countries are, however, governed by separate RBI procedures and rules and are not covered by the foreign technology collaboration approval. Similarly, payments for imports of plant and machinery and raw material are also not covered by the foreign technology collaboration approval for which RBI is the competent authority.

Mainly the delays mentioned by foreign investors are not at the stage of FDI approval i.e. at the entry point whether through RBI automatic route or FIPB approval. 1. The FIPB considers application on the basis of notified guidelines and disposes them within a 6-8 week timeframe, as has been laid down by the Cabinet. The entire process of FIPB applications, starting from their registration through to listing on FIPB agenda and their final disposal and despatch on official communication is placed on the website, which adds to the transparency of decision-making and enhances investor confidence.

Similarly, the underlying advisory support in the form of online chat facility and dedicated email facility for existing and prospective investors has created an investor friendly image. A FICCI Study on, Impediments to Investment (January 2002) has acknowledged that the Central level FIPB clearances have been successfully streamlined. The FIPB approval system has also been rated as world class by independent surveys conducted by CII and JICA.