Jaitley Removes Key Foreign Investment Hurdle in India Budget

  • Projects set to move faster, move may boost FDI: analyst
  • India’s foreign direct investment only fraction of China’s

Give and Take: What to Expect in India's Budget

India plans to remove a crucial bureaucratic barrier in its quest to compete with China to attract higher foreign direct investments into Asia’s third-largest economy.

In his budget address to the parliament, Finance Minister Arun Jaitley said he was scrapping the Foreign Investment Promotion Board, often criticized for slowing down projects and proposals. It will be abolished from the new financial year that begins April 1, he said.

While the board’s powers have been steadily whittled down since it was established in the early 1990s -- at a time when India’s economy was opening up to foreigners -- it still clears applications for foreign direct investments for up to 50 billion rupees ($740 million). It focuses on sectors where foreign companies are not allowed controlling equity, or in areas where government approval is needed, such as banking, defense and civil aviation.

FDI inflows between April-September 2016-17 were at $21.7 billion, a 31 percent rise from a year earlier, according to the India Economic Survey presented to parliament Tuesday. That was still a fraction of the FDI worth about $118 billion received by China in the whole of 2016.

"The move to abolish is positive and may give a fillip to FDI, but a lot will depend on a consistent road map that the government should lay down," said Aakash Choubey, partner at Khaitan & Co, a tax consultancy firm.

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