India is a preeminent destination for Foreign Direct Investment (FDI), recorded an unprecedented inflow of $81.72 billion in the financial year 2020-21¹. In a bid to enhance the expeditiousness and efficiency of the FDI approval process, the Department for Promotion of Industry and Internal Trade (DPIIT) released a revised Standard Operating Procedure (SOP) on August 17, 2023²³. This updated SOP supersedes the previous iteration dated January 9, 2020, which delineated the procedures for processing FDI proposals necessitating government approval under the Consolidated FDI Policy 2020 and the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019.
Key Changes in the New SOP
While the new SOP maintains the existing procedural timelines, it introduces substantive changes geared towards fostering a more efficient and user-friendly application process. The salient modifications include:
1. Transition to Digital Platform:
The application process is now exclusively conducted in a paperless and online format, obviating the option to submit physical copies. All applications necessitate digital signatures.
2. National Single Window System (NSWS):
Effective from August 5, 2022, online applications are redirected to the National Single Window System (NSWS), superseding the Foreign Investment Facilitation Portal (FIFP). NSWS integrates diverse services and approvals indispensable for initiating and sustaining business activities in India.
3. Entity-Specific Application Filing:
Applications are mandated to be filed solely by the investor entity, eliminating the investee entity's filing prerogative. The investor entity's representative must submit an affidavit affirming exclusivity in proposal submission, with NSWS granting login privileges exclusively to the investor entity.
4. Dissemination and Review Protocol:
DPIIT assumes responsibility for disseminating applications to pertinent authorities for review, including the administrative ministry/department (Competent Authority), Ministry of External Affairs (MEA), and the Reserve Bank of India (RBI) within a two-day window from application receipt.
5. Competent Authority Oversight:
The Competent Authority is designated as the primary entity responsible for processing and adjudicating applications. All ancillary authorities involved in the review process are obligated to furnish comments to the Competent Authority within prescribed timelines.
6. Timely Communication of Decision:
The Competent Authority is mandated to communicate acceptance or rejection of proposals to the applicant within a 12-week timeframe from the date of application submission.
These revisions aim to streamline and expedite the application process, thereby reducing bureaucratic impediments and fortifying the government's commitment to attract and facilitate FDI. However, challenges persist, necessitating due consideration and resolution, including issues pertaining to investee entities, practical challenges for foreign investors, and extant ambiguities within the FDI policy framework.
Significance and Challenges
The revised SOP heralds a positive transformation in the digitization and simplification of the FDI approval process in India. The anticipated reduction in paperwork and procedural delays is poised to augment the ease of conducting business in the country. Enhanced transparency and accountability are anticipated outcomes, ensuring a uniform and consistent approach to FDI proposals.
Nevertheless, challenges persist. The obligation for exclusive filing by the investor entity raises concerns for investee entities unfamiliar with the Indian regulatory landscape. Practical challenges, particularly for foreign investors in obtaining and utilizing digital signature certificates, merit attention. Furthermore, the revised SOP does not comprehensively address lingering ambiguities in the FDI policy and approval process, necessitating further refinement.
The DPIIT's revised SOP for processing FDI proposals in India, 2023, represents a commendable stride toward modernizing and streamlining the approval process. The initiative underscores the government's commitment to fostering a conducive business environment and bolstering investor confidence. Nevertheless, inherent limitations and challenges must be diligently addressed to optimize the efficacy of the FDI approval process. Regular reviews and updates by the DPIIT are imperative to align the SOP with evolving stakeholder needs and the dynamic FDI policy and regulatory framework in India.
¹: Department for Promotion of Industry and Internal Trade, Fact Sheet on Foreign Direct Investment (FDI) From April, 2000 to March, 2021 
²: Department for Promotion of Industry and Internal Trade, Standard Operating Procedure (SOP) for Processing Foreign Direct Investment (FDI) Proposals, August 17, 2023 
³: Press Information Bureau, New Norms for Processing FDI Proposals, August 18, 2023