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FIPB Abolished- How good is it for FDI?

FIPB Abolished- How good is it for FDI?

Foreign Investment Promotion Board is an inter – ministerial body, which was responsible for the procession of the FDI proposals made to the Government of India. The FIPB was under the department of Economic Affairs, Ministry of Finance. It was also governed by the Department of industrial policy and promotion in the Ministry of Commerce and industry, whose policies of FDI, press notes and other related guidelines were the basis of the decisions of FIPB. It was a single window clearance for proposals of Foreign Direct Investments in India. The FIPB is now abolished as announced during the Financial Budget speech 2017-2018 which has led to the closure of the two routes for incoming FDI.

Sectoral Routes

Foreign Direct Investments flows into India in two ways, through automatic route and through Government approval. FIPB deals with the latter, where approvals were obtained. The Finance Minister was in charge of the recommendations from FIPB on foreign equity for up to Rs. 5000 Crores and the recommendations above the said amount would go to the cabinet committee on economic affairs for their consideration. The sectors under the automatic route would not require any approvals from the FIPB and only come under the sectoral laws. More number of sectors were put into the automatic route list giving way for liberalization of FDI.

FIPB Abolishment Liberisation of FDI

Over the years, the FDI norms were liberalised and more so in the last two years, keeping in line with the Make in India program, many sectors were moved to the automatic route and did not require the FIPB approval.in November 2015, 15 sectors were liberalised and in June 2016 many sweeping changes were made in the FDI policies of India. Owing to this drastic change, in the budget 2017-2018, FIPB was totally abolished. The Finance Minister had pointed out that more than 90% of the foreign investments come under the automatic route and presence of FIPB had become redundant which paved way for liberal FDI policies. The liberalisation of FDI has led to increased inflow of investments. Further the Government has taken various steps like relaxation of norms for NRIs, PIOs and OCIs allowing their investments to be treated on par with the domestic investments. The Government has also decided to grant Permanent Residency Status for 10 years to foreign investors who meet a specific set of criteria. All these measures lead to the abolishment of FIPB that has eventually increased FDI inflow, and in turn developing the economy..

 Scenario after the Union Budget, 2017-2018

The abolishment of FIPB was called as a welcome move by various economists and investors. Economists claimed that this measure would open up the Indian economy more and attract foreign investors which can act as a major boost to the ‘Make in India’ initiative. As on date, after the abolishment of FIPB, all investments except for the sectors of Retail and Defence come through the automatic route. The Government has also clarified on this, that it would continue with several reforms to strengthen foreign investments. Other foreign investors would go through only the sectoral laws for the investments.

Conclusion

The measures taken by the Indian Government is a clear message to the foreign investors that the Indian economy is open for investments and FDI is beneficial to both India and the investors. The abolishment of FIPB is a one step forward towards easing the FDI norms. India being one of the emerging new economies, it would attract more business which in turn would create more job opportunities to the growing population.

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