18 July, 2017
Abolition of the Foreign Investment Promotion Board
The Department of Economic Affairs, Ministry of Finance (‘DEA ’), has, by way of an office memorandum dated June 5, 2017, notified the Government’s approval to abolish the Foreign Investment Promotion Board (‘FIPB ’). 11 sectors (including telecom, broadcasting, defence and banking) would continue to require Government approval for foreign investments, while the responsibility to grant such approvals would now vest with the concerned administrative ministries / departments. Applications for investment in core investment companies or Indian investing companies, and investments in financial services sectors not regulated by any financial services regulator, will be processed by DEA .
Further, the following foreign investment proposals requiring Government approval, will be dealt with by the Department of Industrial Policy and Promotion (‘DIPP ’):
i. Trading (Single, Multi brand and Food Product Retail Trading);
ii. Proposals by non-resident Indians / export oriented units;
iii. Issue of equity shares under the Government route for import of capital goods / machinery / equipment (including second hand machinery); and
iv. Issue of equity shares for pre-operative / pre-incorporation expenses.
The DIPP will identify the relevant ministry in respect of applications where there is doubt about the administrative ministry concerned. The office memorandum also specifies that all applications pending with the FIPB portal as on the date of abolition of FIPB , will be transferred immediately by the DIPP to the relevant administrative ministry / department.
The DIPP has also issued a detailed standard operating procedure (‘SOP ’) on June 29, 2017, which outlines the guidelines to the relevant administrative ministries / departments for processing of the FDI proposals. The SOP inter alia prescribes the process of inter-ministerial consultations as well as indicative timelines within which the proposals are to be assessed and disposed off. The applications will continue to be filed on the current online FIPB portal (now renamed as the ‘Foreign Investment Facilitation Portal’).
The SOP further prescribes that proposals involving a total foreign equity inflow of more than . 5,000 crores (approx. US$ 772 million) will additionally require the approval of the Cabinet Committee on Economic Affairs (Ministry of Finance), and that the concerned ministry will also seek DIPP concurrence where a proposal is being rejected or being granted subject to conditions not specified in the relevant laws.
Changes to Framework for Masala Bonds
The RBI , by way of Circular No. 47 dated June 7, 2017, has reviewed the existing framework in relation to the issuance of rupee denominated bonds overseas (‘Masala Bonds ’) in order to harmonize the various elements of the ECB framework and revised the framework. The circular provides as follows:
(i) Proposal for issuance of Masala Bonds will be examined by the Foreign Exchange Department;
(ii) The minimum original maturity period for Masala Bonds up to US$ 50 million (equivalent in . per financial year) is 3 years and for Masala Bonds above
US$ 50 million is 5 years. Previously, such bonds were subject to a minimum maturity of 3 years;
(iii) The all-in-cost ceiling for Masala Bonds will be 300 basis points over the prevailing yield of the Government of India securities of corresponding maturity.Previously, the all-in-cost ceiling was to be commensurate with the prevailing market conditions; and
(iv) Investors in Masala Bonds should not be related parties (within the meaning given in Ind-AS 24).
For further information, please contact:
Zia Mody, Partner, AZB & Partners
zia.mody@azbpartners.com
