Only seven Foreign Direct Investment (FDI) proposals have required approval of the Cabinet Committee on Economic Affairs (CCEA) since the floor above which projects need clearance from the top decision-making body was raised to Rs 5,000 crore in March 2016. Other than the FDI transaction of Rs 25,000 crore regarding Vodafone Idea’s fully subscribed rights issue, no single inflow exceeded the new threshold of Rs 15,000 crore for CCEA approval which the government is reportedly going to introduce.
According to government sources, the floor for CCEA nod is being reviewed given the prevailing economic conditions and India’s increasing attraction as an investment destination for large scale projects in key strategic sectors amidst liberal government support. But a look at the FDI proposals of the last few years doesn’t indicate a visible rush of poposals requiring CCEA approvals.
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Analysts flag issues of inflation and rupee depreciation. The last revision that raised the floor to Rs 5,000 crore from Rs 3,000 crore was 10 years ago. At that time, a sum of Rs 5,000 crore amounted to $750 million, but at current exchange rate, it is worth about $ 525 million only.
Easing Regulatory Friction
The proposed increase in CCEA threshold does not change how much an investor can invest in India, or the sectoral caps, in the small set of areas where they exist. “It changes the process once the investment gets large enough. That distinction matters, particularly in Mergers and Acquisitions (M&A), where an additional approval can become part of the closing timetable and add uncertainty to the deal,” Managing Partner at SVAS Business Advisors Vishwas Panjiar said.
“The reshaping of global supply chains gives India an opportunity, but it also means India has to compete harder for that capital. The recent changes to FDI, capital markets and regulatory approvals are broadly moving in the same direction: reducing the friction around bringing capital into India,” he added.
Before 2010, all FDI proposals worth more than Rs 600 crore went to CCEA for approval. In February 2010 it was raised to Rs 1,200 crore and then by April 2015 to Rs 3,000 crore.
This liberalisation in limits was accompanied by abolition of Foreign Investment Promotion Board (FIPB) in May 2017.
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India needs foreign capital, the rupee has been under pressure and global investors have more choices than they did a few years ago. This latest proposal follows in a series of steps taken by the government to boost foreign investment inflows. While debt raising overseas has brought in substantial funds in the short-term, FDI will deliver long-term investments.
Recently the government operationalised FDI in e-commerce for export. Reports suggest that it is also considering a proposal to exempt foreign companies from obtaining fresh approvals for downstream investments.
Streamlining Clearance Timelines
In May the Department for Promotion of Industry and Internal Trade (DPIIT) had revised the Standard Operating Procedure (SOP) for Processing FDI proposals. This was done to streamline and digitise the approval framework for FDI proposals requiring government nod.
The SOP replaces the earlier framework of 2017 and introduced expanded compliance, disclosure and monitoring requirements. It extends the disposal time line to 12 weeks from 10 weeks. It, however, puts a fixed time frame for even the security clearance from the Ministry of Home Affairs (MHA) and approvals from the Ministry of External Affairs (MEA) and Reserve Bank of India (RBI).
Under the new procedure for FDI clearance, all Ministries and Departments consulted on any proposal, including RBI, MHA and MEA shall provide their comments within the prescribed timeline. In case comments are not received within the prescribed time, it shall be presumed that they have no comments to offer.
In 2025-26 India received gross FDI of $ 94.53 billion. According to Invest India leadership the country is on track to attract an average of $ 100 billion in annual FDI over the next seven years if present trends sustain.
TOPICSFalling Rupee ValueinflationThis article was first uploaded on August eleven, twenty twenty-six, at nineteen minutes past ten in the night. © The Indian Express (P) Ltd