New Beginning of FDI Starts With The Abolition Of FIPB

The Ministry of Information & Broadcasting (MIB) is now the nodal ministry for all foreign direct investment (FDI) proposals related to the broadcasting and print media sectors, as per the official memorandum issued by the Ministry of Finance (MoF) on the abolition of the Foreign Investment Promotion Board (FIPB). Finance minister Arun Jaitley had announced the abolition of the FIPB in his budget speech and the union cabinet had approved the abolition proposal on 24 May. The memo further stated that FDI proposals by non-resident Indians (NRIs)/export-oriented units (EOUs) requiring approval of the government will be dealt with by Department of Industrial Policy and Promotion (DIPP) and the DIPP will continue to be the administrative ministry for this purpose.

The DIPP will also handle applications for issue of equity shares under the government route for import of capital goods machinery equipment (excluding second-hand machinery), as well as applications for issue of equity shares for preoperative/pre-incorporation expenses (including payments of rent, etc.). Applications for investments from ‘countries of concern’ requiring security clearance as per the extant FEMA, FDI policy and security guidelines will be processed by the Ministry of Home Affairs (MHA). It further clarified that only such investments falling under the automatic route sectors/activities requiring security clearance may be processed by the MHA itself, while cases pertaining to other approval route sectors/activities requiring security clearance may be processed by the nodal administrative ministries/departments in consultation with the MHA. Applications for foreign investment in a core investment company or an Indian company engaged only in the activity of investing in the capital of other Indian companies will be processed by the Department of Economic Affairs, MoF, irrespective of the sector in which the investment is being made.

In respect of applications in which there is a doubt about the administrative ministry concerned, the DIPP shall identify the administrative ministry/department where the application will be processed. Applications requiring the approval of the government will continue to be received by the existing FIPB portal, the oversight of which shall be transferred to the DIPP from the DEA within four weeks. Upon receipt of the FDI application, the administrative ministry/department concerned shall process the said application. To that end, a standard operating procedure (SOP) with detailed guidelines will be developed and laid down by the DIPP in consultation with administrative ministries/departments/sector regulators so as to guide the administrative ministries/departments for processing of the FDI proposals and ensure consistency of treatment and uniformity of approach across sectors.

The SOP shall involve the process of inter-ministerial consultations for the examination of FDI proposals, where necessary. The SOP will also recognise that ordinarily FDI applications, including those related to NRIs/EOUs, food processing, single-brand retail trading (SBRT) and multi-brand retail trading (MBRT) proposals, should be decided in 60 days. The administrative ministry/department will seek the approval of the minister-in-charge/Cabinet Committee on Economic Affairs (CCEA) on the application as per the existing FDI policy. The consensus of the DIPP would be mandatory with reference to the FDI applications which are proposed to be rejected by the competent authority or where approval is proposed by competent authority, subject to additional conditions not provided in the FDI policy. The monitoring of the compliance of conditions under the FDI approvals, including past cases approved by the FIPB, shall be done by the administrative ministries/departments concerned. Joint quarterly review meeting will be undertaken by a committee co-chaired by secretary, DEA, and secretary, DIPP, on the pendency of proposals with the government.

The secretary of the administrative ministry/department concerned may also be invited to attend the meeting. There are about 4,500 files currently with the FIPB secretariat. These files are important from the point of view of reference, record and examination by investigating agencies. These files are permanent in nature and will be transferred to the ministry/department concerned by the FIPB secretariat. All past, present and future litigations and liabilities, in various courts and adjudicatory forums, in relation to the approvals of the governments, shall be handled by the respective administrative ministry/department. An affidavit to this effect will be filed accordingly in all such pending and ongoing cases. RTI applications and appeals pending with the FIPB secretariat shall be transferred to the respective administrative ministry/department. In February 2015, the government had launched a user-friendly and secured website, fipb.gov.in, for filing of applications seeking approval of the government.

Subsequent to the abolition of the FIPB, the management and responsibility for running the website will be that of the DIPP. The administrative ministries/departments will be granted access to the online portal from where they can download and process their respective applications. All applications pending with the FIPB portal as on the date of abolition of the FIPB will be transferred to the respective administrative ministry/department by the DlPP.

Author of the FDI Policy

Since DIPP is the author of the FDI Policy, hopefully it would be able to grasp the policy objectives better, and the scope for non-alignment between policy and implementation would reduce significantly. While dismantling the FIPB may overall be positive and in line with the government’s objective to reduce regulatory hurdles, its real benefit may only be felt when the FDI Policy is further liberalised in regulated sectors (such as retail, pharma, holding companies) and niggling issues are addressed. Meanwhile, there are certain steps which the government should undertake for a smoother transition to the new regime. While the roadmap clarifies that the pending applications would be transferred to the respective ministries, it is silent on the manner of seeking specific dispensations under the FDI Policy wherein more than 30 sectors have sector-specific conditions. One hopes that the standard operating procedure to be issued by DIPP would clarify this. Additionally, the FIPB in its two decade existence had built substantial jurisprudence and experience in interpreting and implementing the FDI Policy. It is crucial now to focus on capacity building in the respective ministries to decipher the FDI Policy and investment structures. Though the roadmap indicates that for certain sectors such as retail, there would be timelines for processing of applications, it is silent on most sectors. Similar to indicative timelines provided by RBI for processing applications, there should be clear timelines for approvals.Further, in terms of the roadmap, concurrence of DIPP has been made mandatory for rejection of applications. However, there is seemingly no mechanism to address a divergence of opinion on this and whether a particular view would prevail, failing which such a stipulation would be incongruous. Therefore, DIPP’s role as the nodal body with significant experience on FDI Policy becomes extremely critical in guiding ministries in the approval process. To conclude, there is one policy aspect which perhaps requires a larger rethink. FIPB was a multi-disciplinary body, incorporating representatives from various ministries. It was on the strength of such assimilative representation that it could often take pragmatic decisions, including providing dispensations and taking constructive interpretations.

The government has publicly spoken of the need to empower government officials to take pragmatic, constructive, and quick decisions, without which policy cannot be implemented effectively. Given our history of often questioning even bona fide governmental decisions, the jury is out on whether a decision making process now dispersed between various ministries, will continue to see constructive interpretation of the FDI Policy to promote foreign investment. We hope that officials do not become wary of taking bona fide definitive decisions, apprehending that such decisions may be questioned later or viewed as favouritism. To continue the momentum, the Indian economy needs bold policy measures and confident decision making.

Abolition the Foreign Investment Promotion Board

The Union Cabinet at its meeting, decided to wind up the Foreign Investment Promotion Board (FIPB). The FIPB was a 25-year-old inter-ministerial body, responsible for vetting and approving foreign direct investment (FDI applications) in India in sectors that required prior government approval. The abolition is in line with the Union Cabinet’s oft stated aim of improving ‘the ease of doing business in India.

The Union Cabinet has laid out the following roadmap for processing FDI applications after abolition of the FIPB:

  • A timeline of four weeks has been set for the abolition of the FIPB. It is noteworthy that the FIPB had stopped considering FDI applications filed after 31 March 2017, in anticipation of such abolition.
  • The processing, scrutiny and approval of FDI applications will now be handled by the Department / Ministry relevant to the particular sector.
  • The Department of Industrial Policy and Promotion (DIPP) will be consulted by the relevant Department / Ministries while scrutinising such applications. Rejection of FDI applications by the relevant Department / Ministry shall require concurrence of the DIPP. Any additional condition imposed by a Department / Ministry pertaining to a particular sector, that is not set out in the FDI Policy, will also require concurrence of the DIPP.
  • Proposals for FDI in sensitive sectors will also require a separate security clearance from the Ministry of Home Affairs (MHA).
  • A standard operating procedure (SOP) will be issued by the DIPP for facilitating the processing FDI applications.
  • The FDI Policy will prescribe fixed timelines for scrutiny and approval of applications for FDI by the relevant Department / Ministries.

Liberalised FDI

Star India has shown appetite to ramp up its investments in India. If the government removes foreign direct investment (FDI) constraints in TV news and direct-to-home (DTH) sectors, the 21st Century Fox subsidiary will be keen to flow in new investments. In its response to TRAI’s pre-consultation paper on ‘Ease of doing business in TV broadcasting’, Star India has urged the regulator to ensure a level playing field for foreign and domestic broadcasters in owning stakes in the distribution platform business. Star said that the cross-holding restriction of 20% in DTH is unfair to foreign broadcasters as domestic broadcasters are able to evade these requirements through corporate structuring, which is out of bounds for foreign broadcasters.

The broadcaster further submitted that there is enough competition in the DTH sector to take care of anti-trust issues. It further stated that the Competition Commission of India (CCI) looks into complaints pertaining to anti-competitive practices or abuse of dominance issues. “In such scenario, the blanket restriction on broadcasters restraining them from directly investing in a DTH entity and vice versa seems out of place,” Star said in its submission. “Furthermore, distribution platforms are running their own channels that are not even registered with the central government, but TV channels cannot have a stake in a DTH platform in excess of 20%. Such irrational skewed ness need to be addressed at the earliest,” it added further.

In the DTH space, 21st Century Fox effectively holds 30% stake in DTH operator Tata Sky, in which Tata Group is the bigger partner with 60% stake while Temasek holds the remaining 10%. While the FDI limit in TV distribution platforms like DTH is 100%, the Ministry of Information & Broadcasting (MIB) has imposed a restriction of 20% cross-holding that a broadcasting entity can hold in a DTH firm. It is pertinent to note that TRAI has recommended removing cross-holding restriction on broadcasters and DPOs to the MIB. On TV news, Star submitted that the business of news broadcast in India is reeling from serious investment and fund crunch. To ease the same and improve the quality of news content in the country, FDI regulations for this sector need to be relooked, it said. Specifically, the requirement to have an Indian shareholder holding the single largest shareholding needs to be revisited, it added further.

Currently, foreign companies can own up to 49% in TV news channels. The other 51% should be held by a single Indian partner. In non-news, 100% FDI is allowed. Star was present in news broadcasting through its joint venture with the ABP Group. The JV, Media Content & Communication Services (MCCS), ran three channels Star News, Star Majha and Star Ananda. Irked by the FDI restrictions, Star sold its 26% in MCCS to senior partner ABP. The channels were subsequently rebranded ABP News, ABP Majha and ABP Ananda. Star has also sought clarity with respect to filing of fresh application where 100% FDI is allowed through automatic route. The Union cabinet had recently abolished the Foreign Investment Promotion Board (FIPB), the nodal body for approving FDI under approval route, and allowed respective ministries/departments to process FDI applications of their departments.

TRAI had issued a pre-consultation paper on ease of doing business in the TV broadcasting sector in India. The objective of the pre-consultation paper was to take forward the government’s efforts towards ease of doing business. Through the exercise, TRAI aims to review various policy issues related to the broadcasting sector with a view to creating a conducive and business-friendly environment in the sector.

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