By Rupin Chopra and Apalka Bareja
The Department for Promotion of Industry and Internal Trade (“DPIIT”) being the responsible department under the Central Government for formulating and implementing strategies necessary for developing industries in compliance with development and national objective. DPIIT on August 17, 2023 released a new standard operating procedure (SOP) for processing Foreign Direct Investment (FDI) Proposals.
The standard replaced the existing SOP dated November 9, 2020 which consisted the manner in which FDI proposals that required government approval under the Consolidated FDI Policy 2020 (“FDI Policy”) and the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, were being processed. The SOP released in 2020 had earlier replaced the initial standing operating procedure issued by the DPIIT on June 29, 2017. This updated SOP signifies a push for a more efficient and transparent FDI approval process.
Key Changes under New SOP:
- National Single Window System (“NSWS”): With effect from August 5, 2023, online applications for FDI proposals are to be filed through NSWS online portal (https://www.nsws.gov.in/). Earlier, as per SOP 2020, online application for FDI proposals were to be filed on the Foreign Investment Facilitation Portal (“FIFP”).This new initiative by the DPIIT has made the procedure easier as “NSWS” is a single window for filing and getting clearance of regulatory approvals and registrations. This emphasis on digitization not only expedites processing but also reduces paperwork and ensures a more streamlined experience for investors.
- Paperless Application Process: The new SOP has entirely ceased the option of filing physical application, unlike erstwhile SOPs. The application is now required to be digitally signed and uploaded on NSWS. Having said that, in case originality of any scanned documents is in question then the competent authority may call for physical copy of original documents. Most importantly, New SOP also guides about the principle details that are required and shall be provided in the FDI proposal.
According to the new SOP, all documents executed outside of India must now be authenticated in accordance with the Foreign Exchange (Authentication of Documents) Rules, 2000. This means that a person authorized by Section 3 of the Diplomatic and Consular Officers (Oaths and Fees) Act, 1948. This individuals include any foreign diplomatic or consular officer authorized to administer an oath, take an affidavit, and perform notarial acts performed by public notary officers. With this modification, technically, notarization- that is, certification from foreign notaries- is now required for all supporting documents executed outside of India. - Approval Procedure: After the online application is made on NSWS, it is the responsibility of the DPIIT to identify and assign it to the relevant competent authority. Further, the proposal is supposed to be circulated online to the Reserve Bank of India (RBI) from FEMA standpoint, to the Ministry of Home Affairs (MHA) where all such proposals are subject to security clearance and all the proposals also have to be forwarded to Ministry of External Affairs (MEA) for information.
- Timelines: As per the new SOP, the prescribe timeline is 12 weeks from the date of filing an application for the competent authority to communicate the decision to the applicant. But, this excludes the time that may be taken by the applicant to provide any clarifications/documents or to remove any deficiencies in the application, if asked by the authorities.
- Inter-Ministerial Committee (IMC) and CCEA: For delayed FDI proposals or those escalated by the Competent Authority for quicker disposal, as SOP 2020 had provided earlier, the IMC shall continue to examine and guide the Competent Authority for timely disposal of such proposals under New SOP. Further, as similar to Erstwhile SOPs, the FDI proposals worth more than INR 50 Billion (approx. USD 600 million) will continue to be placed before the Cabinet Committee on Economic Affairs (“CCEA”).
- Monitoring and Review: As per the New SOP, each ministry/department should have a dedicated FDI cell with a nodal officer not below the rank of Joint Secretary. Further, the DPIIT should summon a review meeting regularly on pendency of FDI proposal with the competent authority periodically say every 4 to 6 weeks for timely clearance of FDI proposals.
- Enhanced Documentation Scrutiny: Under the new SOP, a few additional documents would be required apart from the documents which were required to be filed as per Erstwhile SOPs for seeking FDI approvals. This involves an undertaking that the investors and investee (including officers and promoters) are not subject matter of any caution or negative or debarred list of any government or international bodies or tax agencies or regulators.
The level of checks have been enhanced and accordingly, it specifically requires an applicant to furnish entity- wise details of the existing shareholders /directors/investors/key managerial personnel of upstream entities (till the ultimate beneficial owner) of the investor(s)/investment committee members/limited partners/general partners and details of other/public shareholders; who are either sharing land borders with India the having beneficial ownership vested in such country, affixed with their respective percentage/degree of ownership or shareholding and control in the relevant entity(ies), clearly indicating the place of incorporation/existing citizenship/residency of all such entities/individuals. - No fresh approval for further FDI Infusion: As per the prescribed FDI Approval Letter format under the new SOP, it is explicitly mentioned that no prior approval of the competent authority is required for further FDI infusion so long as there is no change in FDI percentage holding already approved, subject to the limit of INR 50 Billion. An intimation to the competent authority will be required by the investee company in case of any further infusion.
Conclusion:
The revised SOP for FDI proposal by DPIIT signifies a new era for foreign investment in India. The emphasis on digital filing, dedicated support structure and practically enhanced scrutiny establishes a robust and transparent framework for attracting foreign capital. The focus should make the FDI approval process more transparent and investor friendly. This can contribute to increased foreign investment inflows, potentially boosting economic growth on job creation in India.
Aishwarya Rajput, Assesment Intern at S.S. Rana & Co. has assisted in the research of this article.