The Hindu Business Line : Most proposals go through RBI's automatic route

FOREIGN direct investments (FDI) approved by the Foreign Investment Promotion Board (FIPB) during fiscal 2003-04 add up to a meagre Rs 3,729.48 crore. Of the total FDI approved since 1991 amounting Rs 2,79,533 crore, this works out to a mere 1.33 per cent, the lowest since 1995, the year which witnessed even lower approval at Rs 534.11 crore.

This data, however, does not include FDI clearances through the automatic approval route of the Reserve Bank of India (RBI).

"This is a positive development," say Government officials. "There are still some wrong notions among foreign investors about the regulatory mechanism. But, as of now, except a handful of sectors, all others have been put under the RBI's automatic route," they said.

But even then, at its weekly meetings, a number of proposals are placed before the FIPB that do not require its clearance. "By law, if some application comes to the FIPB, the board has to take a view on that," officials explain. "So, if an investor files an application which does not require clearance, the board approves it immediately with the advice that it should be dealt with by the RBI," they said.

That being the ground realities, officials note that the FDI approvals through RBI would be much higher. "For example, a huge amount of FDI is flowing into the auto components sector. But that figure will not be reflected through FIPB clearances," officials said.

The single largest FDI proposal cleared by FIPB during 2003-04 was the Rs 456-crore investment plan proposed by foreign financial institutions and strategic investors for acquiring almost a100 per cent stake in Gujarat Pipavav Port Ltd.

The second largest proposal pertained to CDC-PTL Holdings Ltd's plan to acquire controlling stake in the automobile companies disinvested by Punjab Government, namely, Punjab Tractors and its three subsidiaries — Swaraj Mazda Ltd, Swaraj Engines Ltd and Swaraj Automobiles Ltd.

The other big investment plans that received clearances during the year include Standard Chartered Bank and JP Morgan Finance plans to set up separate wholly-owned subsidiaries for undertaking NBFC activities with investment totalling Rs 250 crore and Rs 175 crore, respectively.

According to a senior chartered accountant in a global consultancy firm, "this happens because in case of large investments, the investor feels comfortable while dealing with the state governments if they have a Central clearance. Some of the officials in the States still view that RBI is only for bringing in the foreign exchange but for investing it in business, one needs Central clearances.

"Though the coordination by the Foreign Investment Implementation Authority (FIIA) is helping the States to dispel such wrong notions, the process is very slow," he said.

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