Reform push by government may lead to FIPB phaseout

NEW DELHI: The government is hoping to do away with the Foreign Investment Promotion Board ( FIPB), the agency set up at the time of economic liberalisation 25 years ago- as it further eases rules to do away with prior approval for investment and allow new instruments that go beyond the traditional equity shares to boost the start-up ecosystem.

“We are looking at other sectors which can be put on the automatic route. The gatekeeper under FEMA (Foreign Exchange Management Act) will be RBI and the gatekeeper for other sectors will be the regulators. We are looking at a situation where eventually FIPB gets phased out," economic affairs secretary Shaktikanta Das said.

FIPB was set up in 1991 along with industrial delicensing. At that time, FDI in most sectors required government approval with the Prime Minister's Office directly overseeing the process.

FIPB may become redundant as more sectors are opened up.“The idea is to move towards more opening up and to have more and more process driven activities and methods. Today nobody visits North Block for FIPB clearance because everything is online. The application is online, clarifications if any are online, consultations with ministries are also done online," Das said.

Pointing to the proposed regime for non-banking finance companies (NBFCs), he said currently investment in segments other than 18 groups of NBFCs require FIPB approval. That system will soon be dispensed with and entities regulated by Sebi or the insurance regulator won't need further clearance for investment.

While the intent is to do away with the inter-ministerial body there are sectors such as defence and telecom where security considerations require FIPB clearance and dismantling of the agency may not happen overnight, something that even Das acknowledged.

“As it stands today there are sensitivities that need to be taken into account. These are very sensitive and delicate issues which have to be very carefully thought through."

He said putting more sectors in automatic route ­ which means investors only have to inform RBI once they invest­ was aimed at improving ease of investment and tied in with the administration's objective of “minimum government, maximum governance."

Asked about hybrid instruments for FDI, he said discussions had been initiated and would be implemented soon. “Today, you are either coming as equity or any FII investment in excess of 10 per cent.Hybrid would mean basically a convertible instrument. It will help unlisted companies and start-ups.There has to be enough flexibility between the recipient company and the investors to negotiate the terms of investment and easy pull out. It will help promoters in India to access funds from abroad."