A Glance At The Standard Operating Procedure For Processing Of FDI Proposals

The Ministry of Commerce and Industry, through the Department for Promotion of Industry and Internal Trade (DPIIT) vide Notification dated August 17, 2023, announced the amended Standard Operating Procedure (SOP) for Processing FDI Proposals in India.

The first and most significant change that has been introduced is that any FDI proposal requiring approval from the government shall be filed only online using the National Single Window System (NSWS). It is applicable for both FDI approval as well as FEMA approval. Thus, there is no need for filing a physical copy of the application. However, the concerned government department can call for originals of any scanned documents for scrutiny or verification if required.

The applicants must adhere to the formats provided on the portal for making the FDI application. The documents to be uploaded along with the application have been listed in Annexure 1 to the SOP. The applicant must digitally sign these documents before uploading them along with the application for approval. There is also a requirement for filing Annexure 2, which is the form for Security Clearance as per Press Note 3 of 2020.

Once the completed application with digital signatures and annexures is filed through NSWS, the DPIIT shall identify the concerned administrative department, which is the Competent Authority as per Chapter 4 of the FDI policy and assign it for processing and disposal of the Proposal. The Administrative Department/Competent Authority shall process the application seeking post facto approval in terms of clause 4.1.2 of the FDI policy.

DPIIT shall also share the FDI application with RBI for comments from the FEMA perspective. The proposals that require additional security clearance in terms of Press Note 3 of 2020 shall also be referred to the Ministry of Home Affairs for their comments. In addition to this, the proposals which require scrutiny from the Ministry of Home Affairs are the ones that pertain to FDI in Broadcasting, Telecommunications, Satellites (Establishment and Operation), Private Security Agencies, Defence, Civil Aviation and Mining and Mineral separation of Titanium bearing minerals and ores and related activities. If MHA needs additional time or clarification before communicating, then the same has to be communicated in writing by MHA, along with clear visibility of how much additional time is needed to examine the Proposal and confirm clearance.

DPIIT shall also forward all FDI proposals to the Ministry of External Affairs to invite their comments. All the comments and inputs from RBI, Ministry of Home Affairs and Ministry of External Affairs shall be shared by DPIIT with the Concerned Department/Competent Authority processing the FDI application. If no comments are received within the prescribed time frame, it will be assumed that there are no observations from these departments to be forwarded to the Concerned Department/Competent Authority.

Proposals that require clarification on FDI policy alone shall be referred to DPIIT with the approval of the Secretary of the Concerned Department/Competent Authority. Other than that, there is no requirement to refer to every Proposal for discussion with DPIIT. Similarly, consultation with any other department or ministry will require justification and approval from the Secretary of the Concerned Department/Competent Authority.

Another significant change that has been introduced is that the Concerned Department/Competent Authority shall, after examining the Proposal and the inputs received from the other departments, such as the MEA, MHA, DPIIT and RBI, ask for additional documents or clarifications from the applicant in one consolidated request through the Foreign Investment Facilitation (FIF) Portal. This has been done to ensure that repeated back-and-forth requests and submissions cause no wastage of time.

Once these inputs are received, the Concerned Department/Competent Authority shall examine the Proposal in the light of the recommendations and comments received from various departments and ministries such as MHA, MEA, DPIIT, RBI, etc., and also examine the sectoral requirements and policies under the prevailing legislation. Once the Proposal is examined, the Concerned Department/Competent Authority shall communicate the outcome to the applicant through the FIF portal with a copy to all the concerned departments, such as DPIIT, MHA, MEA, RBI, etc.

There are certain FDI proposals that may be pending for longer than usual, or that may be required to be fast-tracked. An inter-ministerial committee has been formed, which includes Secretaries from the DPIIT, Ministry of Corporate Affairs, MHA, Department of Economic Affairs, Concerned Department/Competent Authority and representatives of RBI and Niti Ayog to examine such proposals for timely disposal.

Further, if the FDI proposal involves Foreign Equity more than the prescribed sectoral limits in Chapter 4.1 of the FDI Policy, the Concerned Department/Competent Authority shall place it for the consideration of the Cabinet Committee on Economic Affairs. Once the Cabinet Committee communicates its decision, the Concerned Department/Competent Authority shall publish it on the FIF Portal within 7 days.

Any amendments sought through the NSWS to the applications earlier granted shall be considered valid applications, and there shall be no requirement for a fresh application in such cases.

Where an applicant has not furnished any required supporting documents as requested by the Concerned Department/Competent Authority, the application will be considered incomplete. It shall be then closed by the Secretary of the Concerned Department/Competent Authority after giving one reminder to the applicant about the pending information and documents. A closed application does not mean a refusal or denial of the Proposal, and the applicant can make a fresh application once all documents as required are available with him.

In addition to the above process, there is also a provision for the withdrawal of the FDI application by the applicant. The applicant can also request corrections as may be required in the permission granted, and a format of corrigendum to be issued by the Concerned Department/Competent Authority has also been included in the annexures to the SOP. The SOP is thus quite exhaustive, and the Annexures detail all required formats and documents needed to make the FDI application.

A quick look at the List of Annexures shows the following:

Annexure I- Documents and contents of the FDI Application to be filed by the applicant on NSWS after affixing his digital signature.

Annexure II – Proforma for Security Clearance as applicable to FDI proposals.

Annexure III – Format of Approval Letter to be issued by the Concerned Department/Competent Authority to the applicant.

Annexure IV – Format of Corrigendum to Approval Letter in Annexure III

Annexure V – Timelines to be adhered to by different departments in scrutiny and approval of the FDI proposal.

Annexure VI – Draft of Affidavit of Applicant to be filed along with the FDI Proposal.

Author – Manisha Singh & Puja Tiwari

Link: https://www.mondaq.com/india/inward-foreign-investment/1399750/a-glance-at-the-standard-operating-procedure-for-processing-of-fdi-proposals