We hear a lot on FDI but how it is promoted in India? MBA Aspirants are expected to know this.
Read: Foreign Investment Promotion Board (FIPB)
Two decades ago as India's minister of finance, Manmohan Singh pushed through reforms to end the "license raj", a nightmare web of central planning permits and regulation that had sealed India's economy off from global trade and investment. The reforms jump-started an Indian economic boom.
The Government was committed to promoting accelerated growth in the economy. The role of foreign direct investment (FDI) as a means to support domestic investment for achieving a high level of economic development was well recognized. Increasing the level of inflow of FDI into the country became one of the main objectives of the Government's economic development strategy. The same strategy continued even in the Vajpayee era.
In order to achieve this goal of higher foreign investment the Government constituted the Foreign Investment Promotion Board (FIPB).This specially empowered Board in the office of the Prime Minister, is the only agency dealing with matters relating to FDI as well as promoting investment into the country.
It is chaired by Secretary Industry (Department of Industrial Policy & Promotion).The Foreign Investment Promotion Board (FIPB) considers Foreign Direct Investment (FDI) proposals requiring Government approval.
The objective of the Board is to promote the inflow of foreign direct investment (FDI) into India by undertaking investment promotion activities, and through facilitating investment in the country by international companies, non-resident Indians (NRIs) and other foreign investors in projects which are considered to be of benefit to the Indian economy but do not qualify for automatic approval by the Reserve Bank of India (RBI) and/or are outside the parameters of the existing policy for clearance of investment proposals.
In short, FIPB comes into the picture when automatic route is not available for foreign investment. This happens because India is not a complete open economy. Capital mobility has not been made free, rather it is regulated. Investments in certain sectors and inflows which are above a permitted threshold are not allowed in India automatically. They have to go through FIPB for clearance.
The FIPB is expected to meet every week to ensure quick disposal of the cases pending before it. It endeavors to ensure that the Government's decisions on FDI proposals are communicated to the applicant within six weeks. Foreign Investment proposals received by the board's secretariat should be put up to the Board within 15 days of receipt and the Administrative Ministries must offer their comments either prior to and/or in the meeting of the FIPB. It would function as a transparent, effective and investor friendly single window providing clearance for investment proposals.
Any proposal generally can go through any one of the two approval routes. In the first route, the recommendations of FIPB in respect of the project-proposals each involving a total investment of Rs.1200 crores or less would be considered and approved by the Industry Minister. On the other hand, for investments exceeding 1200 crores, it has to go through the second route wherein the recommendations would be submitted to the Cabinet Committee on Economic Affairs (CCEA) for decision.
FIPB is mandated to play an important role in the administration and implementation of the
Government’s FDI policy. It has a strong record of actively encouraging the flow of FDI into the country through speedy and transparent processing of applications, and providing on-line clarification.
In case of ambiguity or a conflict of interpretation, the FIPB has always stepped in with an investor-friendly approach. The recent e-filing facility is an important initiative of the Secretariat of the FIPB to further enhance its efficiency and transparency of decision making.