Dipp strongly opposes DEA's efforts to monitor FDI policy

Last Updated: Wed, Nov 24, 2010 04:42 hrs

The Department of Industrial Policy and Promotion (Dipp) has strongly opposed the efforts of the Department of Economic Affairs (DEA) to bring in matters related to the foreign direct investment (FDI) policy of the country under the latter's control.

Dipp has shot off a strongly-worded letter to DEA explaining why it should retain matters related to the FDI policy under its gambit. Besides, it has also demanded bringing in the Foreign Investment Promotion Board (FIPB) under its control.

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"The matter would now be considered by the Committee of Secretaries (CoS), which would be meeting soon. Any decision or policy measures related to FDI have an implication on the domestic industry and Dipp's objective is to promote industry. FDI policies are necessary adjunct to domestic industrial policy," a senior Dipp official told Business Standard.

According to Dipp, the matter was resolved seven years back by CoS when it was decided that while DEA would oversee FIPB and its functions, Dipp would continue to administer the country's FDI policy. However, DEA wrecked up the issue this time again due to a delay in notifying the Press Notes 2, 3 and 4 which is related to ownership and control of entities.

But Dipp officials assert that the delay in notifying the Press Notes happened at DEA's end as it wanted the rules to be implemented in a different manner and form. According to Dipp, DEA had asked the Press Notes to be implemented in such a way that any company or domestic entity that has foreign investment in them should be barred from entering sectors where FDI is prohibited.

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For example, the ITC Group's foray into multi-brand retail was put on hold as the group has foreign equity in it. Similarly, Larsen and Toubro's entry into defence has not happened due to the same reason. Apparently, DEA has also objected to the multi-brand retail outlets run by Tata Enterprises' Trent Ltd in the name of Westside.

The official also said Dipp had also objected to the government's proposal to introduce a regulatory body for monitoring all foreign investments coming into the country. "There is no need for a regulator at all. In any case, around 85 per cent foreign investment comes through the automatic route while the remaining through FIPB," he added.

Violation of FDI rules amount to infringement of Foreign Exchange Management Act (FEMA) regulation, which is monitored by the Enforcement Directorate.

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Dipp issued Press Notes 2, 3 and 4 in February 2009, which stated that companies that have foreign investment of more than 51 per cent would be classified as foreign firms. Additionally, if that particular company establishes a subsidiary, the investment made by it would be considered as foreign investment. The Press Notes have now all been brought under the consolidated FDI policy framework released on March 31 this year.

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