The Department for Promotion of Industry and Internal Trade (“DPIIT”) released a new standard operating procedure for processing foreign direct investment (“FDI”) proposals on August 17, 2023 (“New SOP”). It replaced the erstwhile standard operating procedure dated November 9, 2020 (“Erstwhile SOP”), which covered the manner in which FDI proposals that required government approval under the Consolidated FDI Policy 2020 (“FDI Policy”) and the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, were being processed.
While the New SOP does not materially change the existing timelines or procedure, the government has, in what appears to be a step towards digitising the process, made the application process entirely paperless and discontinued the option to submit physical copies of the application. Pursuant to the same, all applications are required to be digitally signed, whereas the Erstwhile SOP permitted applicants to submit physical copies of applications, in cases where they were not digitally signed.
Further, under the Erstwhile SOP, online applications had to be filed on the Foreign Investment Facilitation Portal (“FIFP”), now it has to be done through the National Single Window System (“NSWS”) (with effect from August 5, 2022). The user guide and FAQs on foreign investment approvals available on NSWS indicate that the applications must be digitally signed only by way of digital signature certificates (“DSCs”).
Notably, the Erstwhile SOP was silent on whether the application had to be filed by the investor or the investee entity, so either party could submit the proposal through FIFP. However, the New SOP requires the applicant, from the investor entity, to furnish an affidavit, indicating that only the investor entity can submit the proposal. Further, NSWS also provides login facility to only the investor entity, corroborating the inference that the ability to submit the application is now only vested with the investor entity, not the investee entity.
Procedure and Timelines
After the online application is made on NSWS, the DPIIT is responsible for disseminating it to the relevant authorities for comments, including the administrative ministry/ department (“Competent Authority”), Ministry of External Affairs (“MEA”) and the Reserve Bank of India (“RBI”) within two days of receipt of the application.
The Competent Authority is the primary body responsible for processing and disposing the application and all other authorities involved in the processing of the application are required to provide comments to the Competent Authority within the prescribed time frame. The Competent Authority is required to communicate the acceptance or rejection of the proposal to the applicant within 12 weeks from the date of application. This timeline excludes: (i) any additional time given to DPIIT for considering rejections of proposals or insertion of additional conditions, or (ii) additional time required to clear deficiencies or supply additional information.
The New SOP also prescribes a format for the letter of approval from the Competent Authority. Further, in case of rejections or insertion of additional conditions, the concurrence of DPIIT is mandatory, subject to certain exceptions, including imposing additional conditions on account of compounding under the foreign exchange laws and/ or compliance of laws and regulations or court orders.
The DPIIT must also forward the application to obtain comments from the RBI, from a foreign exchange law perspective, and the MEA. Additionally, security clearance from the Ministry of Home Affairs is mandatory in cases of (i) investments in broadcasting, telecommunication, satellites (establishment and operation), private security agencies, defence, civil aviation and mining & mineral separation of titanium bearing minerals and ores, its value addition and integrated activities, or (ii) proposals that fall under Press Note 3 of 2020. In any case, the New SOP and the FDI Policy mandate an assessment to be carried out by the Cabinet Committee on Economic Affairs for proposals involving total foreign equity inflow of more than INR 5,000 crore.
Moreover, the Competent Authority can refer the application to the DPIIT, on a need basis, to seek clarifications from an FDI policy perspective. Similarly, the Competent Authority can also consult any other ministry in this regard, subject to providing full justification for the same.
The process of rejection, surrendering and closure of applications remains the same as in the Erstwhile SOP. The inter-ministerial body will also continue to function in cases of delayed/ escalated FDI proposals.
Any scrutiny of a proposal by the authorities assessing an application will be through FIFP only, as opposed to the erstwhile process of communicating with the applicant over e-mail. The New SOP also introduces a format for a corrigendum, which can be issued by the Competent Authority, upon request of the applicant, for rectification of grammatical or typographical errors in the approval letter.
The vesting of the authority to submit the proposal with only the investor entity marks a major departure from the earlier framework. Further, the New SOP brings about a significant change in the application process by discontinuing the option of submitting physical copies of the application, indicating that investors across the globe will now have to obtain DSCs for making FDI proposals for government approval in India.
 Department for Promotion of Industry and Internal Trade, Standard Operating Procedure (SOP) for Processing Foreign Direct Investment (FDI) Proposals, August 17, 2023, available at: SOP.pdf (fifp.gov.in).
 Department for Promotion of Industry and Internal Trade, Standard Operating Procedure (SOP) for Processing FDI Proposals, November 9, 2020, available at: SOP-dated-09112020-for-processing-of-FDI-Proposals-10Nov2020.pdf (dpiit.gov.in).