The dissolution of the FIPB indicates a fast-tracking of foreign investment into India.
Bye bye FIPB
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Since more than 90% of foreign direct investment comes through the automatic route, hence the Foreign Investment Promotion Board (FIPB) had lost its relevance and the government has taken the right decision of scrapping it. Further, the sectoral regulation has also become adequately strong, so the need for this Board, which was set up in the early 1990s was no longer felt. Most advanced countries gladly accept all foreign investment, but there are institutional mechanisms to block such investment proposals that hurt national security and interest. It is time India also has such a mechanism in place. Since all foreign investment coming to India needs to comply with RBI’s foreign exchange reporting requirements, hence RBI would be best suited to act as a nodal agency. The government should expand the powers of the RBI beyond collection of information to also refer proposals for vetting to the concerned ministries. The process could be made transparent by placing the factors that led to the decision (of acceptance or rejection of a proposal) before a committee of the Parliament. As said, worldwide there are institutional arrangements in place backed by law that determine if investment proposals threaten national security. The Indian mechanism should have stringent timelines for an RBI review and further reporting to the Parliament.
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