Left Fears On Raised Fdi Ceiling Unfounded
They fear that raising the ceiling would open the floodgates to capital inflow, without any checks on the nature and composition of investment possible in case-by-case clearances.
However, this theory is disproved by FDI clearances since 1991, which indicate that RBI's automatic approval route is defunct and actually accounts for less than 10 per cent of the total FDI approvals and accruals (see visual).
Of the Rs 78,240 crore worth of foreign investments cleared by the government since 1991, approvals through the Secretariat of Industrial Approvals (SIA) stood at Rs 2,210 crore (2.8 per cent), RBI clearances stood at Rs 3,370 crore (4.3 per cent) while FIPB clearances accounted for the bulk of investments at Rs 72,660 crore (92.86 per cent).
The scenario is by no means limited to approvals. Of the total accruals of Rs 16,374 crore worth of FDI inflow since 1991, accruals up to July 1996, government approvals accounted for Rs 9,785 crore (59.75 per cent) worth of FDI while NRI investments stood at Rs 5,037 crore (30.76 per cent). As against this, RBI's automatic approvals accounted for a meagre Rs 1,551 crore (9.47 per cent).
Industry ministry sources explained that this was primarily because the RBI checklist of eligibility conditions for automatic approvals are so stringent that very few applications make the grade.
The government's proposal for freeing the ceiling on automatic approvals envisages no change in the RBI guidelines. This means that applications falling within the ambit of the automatic approvals will continue to flow to FIPB, as is the case now.
Of the 87 applications cleared by FIPB in July this year for instance, 29 applications were for foreign investments below Rs 1 crore, while as many as 50 applications were for foreign equity participation upto 51 per cent.
Since discretionary powers are inherent to case-by-case clearances, FIPB is in the position to take a view on the bulk of the applications that stand rejected as per RBI guidelines. At least now, some sectoral targets and policies are in place, which means there is greater transparency to the clearance process. Otherwise, clearances were entirely left to the discretion of the FIPB, the sources said.
This in turn has given rise to the criticism that instead of concentrating on large applications, FIPB has been reduced to wasting time on small clearances. Government sources said that for a true opening up of the RBI route, existing guidelines would have to be relaxed. Otherwise the bulk would flow to FIPB.
While raising of the ceiling is an issue, the ability of RBI to handle additional applications is also in question.
For one, FDI automatic approvals have been entrusted to the exchange control department in the RBI. This means that clearances are not the primary responsibility of the officials concerned, which makes for delays.
For another, unlike FIPB where a certain amount of computerisation exists, RBI clearances are manual. This has lead to an average waiting time of six to eight weeks, which is the time taken now for case-by-case clearances. The existence single window clearances in that sense is a myth, government sources said.
The industry ministry's proposal for freeing the automatic approval level is presently pending since agriculture minister Chaturanan Mishra (CPI) has sought more time to study the proposal.
The industry ministry has also proposed the expansion of the list of industries eligible for automatic approvals. The present list includes 35 industries. Another 16 industries, including the service sector are proposed to be added.