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FDI : Government Approval Route

June 30, 2020     by Janvi Gupta

For the FDI proposal in the sectors falling under the Government Approval Route, the applications were initially 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 and an investor-friendly system, the new regime was introduced in May, 2017.

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

  • Now the FDI via prior approval route is dealt by the departments of the respective ministries, in consultation with the Department of Industrial Policy & Promotion (DIPP). Thus, removing the hassle of multiple administrative handling.
  • 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). This is the new online single point interface of the Government of India for investors to facilitate FDI in India.
  • The concerned Administrative Ministry/Department shall process the application as per the Standard Operation Procedure (SOP).

Brief process of receiving the Government Approval:

  1. Registration by the applicant on FIFP as a prerequisite for submission of proposal for foreign investment

    Please click here to register on FIFP portal. There is no fees for submission of such proposal at FIFP.

  1. Online filing of proposal for foreign investment by the applicant on FIFP
    The applicant would be required to submit the proposal for foreign investment in the format as available on the portal (the application form has eight tabs viz. Proposal details, Application Details, Investee, Investee activities, Investor, Downstream, Shareholding and Documents Upload.)For list of documents to be uploaded Annexure-1 of SOP is to be referred.
  1. DIPP shall e-transfer the proposal to the concerned Administrative Ministry / Department (Competent Authority) within 2 days
    In addition to e-transfer of proposal to Competent Authority, DIPP shall online circulate such proposal for seeking comments to other “Regulatory Bodies” such as:

    Reserve Bank of India for comments from FEMA perspective,

    Ministry of Home Affairs (in case security clearance in required),

    Ministry of External Affairs (MEA) and Department of Revenue (DoR), wherever necessary.

  1. Initial scrutiny of the proposal by the Competent Authority and other Regulatory Authorities
    The concerned authorities shall raise their comments within 4 weeks of online receipt of the proposal, in case of no comments it would be presumed that they have no comments to offer.
  1. Online receipt of comments on proposal from Concerned Ministry / Department or other Regulators, wherever applicable
    Post scrunity of the proposal, the concerned authorities shall email or through any other online mode, communicate the queries to the applicant and ask the applicant for relevant additional information/documents, if so required.
  1. Addressing of queries by the applicant raised by the Concerned Authority/(ies)
  1. Scrutiny and processing of proposal by the Competent Authority in final
    Once the proposal is complete in all respects, this should take 6 weeks / 8 weeks from the date of receipt of the proposal ( 8 weeks in cases where comments of Ministry of Home Affairs have been sought for security clearance), the Competent Authority shall, within the next 2 weeks, process the proposal for decision and convey the same to the applicant.
  1. Communication of approval / rejection of proposal to the applicant
    Approval/rejection letters will be sent online by the Competent Authority to the applicant. Approval letters have to be issued by the Competent Authority in the format prescribed at Annexure-2 of SOP.

    In case of proposals involving total foreign equity inflow of more than Rs. 5000 crores, Competent Authority shall place the same for consideration of Cabinet Committee on Economic Affairs within the above stipulated timelines. After the receipt of the decision of Cabinet Committee on Economic Affairs, approval letter shall be issued within 1 week.

Competent Authorities for approval:

The Table as mentioned in SOP is to be referred to know who are the Competent Authorities (Administrative Ministry/ Department) for grant of approval for foreign investment for sectors/activities requiring Government approval.

*Proposals which will require security clearance from Ministry of Home Affairs:

  1. Investments in Broadcasting, Telecommunication, Satellites – establishment and operation, Private Security Agencies, Defence, Civil Aviation and Mining & mineral separation of titanium bearing minerals and ores, its value addition and integrated activities.
  2. Investments from Pakistan and Bangladesh.

Latest updates in FDI policy:

With a view to curb the impending threat of “opportunistic” takeovers/acquisitions of Indian entities, the government has made amendments to the existing FDI policy by issuing the Press Note 3(2020). Below are the key points to the revised position:

  • Approval of Government of India required for investment by entity from country which shares land border with India.
  • Approval of Government of India required for investment by entity whose beneficial owner is situated in or is a citizen of any bordering country of India.
  • Approval of Government of India in event of transfer which results in the beneficial ownership falling within the restriction/purview of the new FDI policy.
  • Requirement of clearnce by the Union Government of India for indirect acquisition by China.

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