No FIPB nod required for mergers and acquisitions on automatic route

As part of its initiative to make it easier to do business in India, the government clarified on Wednesday that the approval of the Foreign Investment Promotion Board (FIPB) will not be required for mergers and acquisitions (M&As) in sectors where foreign direct investment (FDI) is allowed under automatic route.

The Department of Industrial Policy and Promotion (DIPP) has issued a new FDI circular as several corporates were confused on the issue and in the process the flow of investment was being delayed.

The initiative is aimed at clarifying the grey areas in the FDI policy. The FIPB, which is an inter-ministerial body, clears investment proposals of up to Rs 3,000 crore.

"This is a step towards ease of doing business. Through this, the DIPP has clarified the existing position," head of tax and expert on FDI with corporate law firm Shardul Amarchand & Mangaldas Krishan Malhotra said.

The circular also said that government permission will not be required for issuing ESOPs (employees stock option plans) in sectors under automatic route.

Currently, foreign investment is permitted either through the automatic route or the government approval route. India currently ranks a lowly 142 out of the 189 countries in the ease of doing business. During the April-February period of 2014-15, FDI grew by 39 per cent year-on-year to $28.81 billion.

The government is taking several steps, including reduction in number of approvals and clearances, to improve ease of doing business in the country and attract domestic and foreign investment.

The permissible FDI limit in the defence sector was increased to 49 per cent, infrastructure norms pertaining to FDI in construction development were liberalised, FDI in medical devices were exempt from sectoral restrictions of pharmaceuticals, FDI in insurance sector and pension sector was raised to 49 per cent from 26 per cent earlier.