Govt mulls easing FDI norms

More sectors to be brought under automatic route.

If the government goes ahead and implements a proposal to overhaul the foreign direct investment (FDI) policy environment, only fresh FDI proposals will require approval from the Foreign Investment Promotion Board (FIPB), the nodal body to clear foreign investment in India, top officials said.

The government is, thus, preparing to open up more sectors to FDI through the automatic route in an effort to make the procedure for inbound foreign investment less cumbersome.

Currently, all FDI investments above Rs 600 crore have to be sent for vetting and clearance by the Cabinet Committee on Economic Affairs (CCEA). There is a proposal to raise this limit so that big investors face fewer hindrances in the scrutiny process.

The government's argument is that investment in India must be made easier and while the FIPB is mandated with this task, this body can represent a speed-breaker to investors.

Accordingly, the Department of Industrial Policy and Promotion (DIPP), the nodal body responsible for policy-making on foreign direct investment, is considering these proposals and will prepare a Cabinet note in weeks rather than months, a government official said.

Current policy stipulates that no scrutiny of FDI proposals, either by the government or the Reserve Bank of India (RBI), is required in sectors covered by the automatic route. Investors are only required to notify the regional office of the Reserve Bank of India (RBI) within 30 days of receiving inward remittances and file the required documents with that office within 30 days of issuing shares to foreign investors.

However, proposals that are not under the automatic route are required to be cleared by the FIPB, after which it is sent for approval of the finance minister or the CCEA, depending on the size of the investment.

The government feels that the Rs 600-crore limit is too low considering the global interest in investing in India. "If you add just the inflation cost, since the limit was set in the late 1990s, the limit will have to be much higher," the official said.

With the general elections due next year, the time for radical economic reform is past. Lowering barriers to investment is, however, one policy reform that the government can undertake without provoking protest either from its allies, the Left parties, or the opposition the BJP.