The government of India is currently working upon a single-window clearance system for foreign direct investment (FDI) proposals. This recent initiative marks another step by the government to foster reform within sovereign wealth funds and tax dispute settlements. As a part of improving the system, the government has also been actively seeking feedback from international investors.
Acknowledging the need for a Single-window System
Historically, investors have needed to navigate through different IT platforms such as the Foreign Investment Facilitation Portal (FIFP) and individual state single-window clearances to obtain necessary information and clearances from various stakeholders. The FIFP was developed as an online interface for investors to facilitate direct foreign investment, managed by the Department for Promotion of Industry and Internal Trade (DPIIT), a part of the Ministry of Commerce and Industry.
All About the Proposed Single-window System
In order to resolve these complexities faced by investors, DPIIT proposed the establishment of a centralised Investment Clearance Cell. The aim is to integrate this cell with existing approval systems from different government departments, creating a single unified application form. This would enable providing end-to-end facilitation support including pre-investment advices, land bank related information and clearances at both Central and state levels.
The digital based format of the Investment Clearance Cell will allow investors to gain access to regulators, policymakers and facilitators irrespective of their geographical location. Meaningful insights on the real-time status of approvals and time-bound approvals would also be available.
Sovereign Wealth Funds and the Government’s Response to Covid-19
Despite the ongoing Covid-19 pandemic, there has been a surge in interest from large sovereign wealth funds to invest in India. In response to this growing interest, the government announced 100% tax exemptions on interest, dividends and capital gains income on investments made in infrastructure and priority sectors by Sovereign Wealth Funds of foreign governments before March 31, 2024.
The National Infrastructure Investment Fund (NIIF) remained in dialogue with investors to prepare the best way forward regarding the benefits of these tax exemptions even during the lockdown period.
Addressing Concerns Over Advance Pricing Agreements and Tax Dispute Settlements
A concern raised by many multinational corporations was the delay in bilateral Advance Pricing Agreements (APAs) and tax dispute settlements. APAs are agreements between a taxpayer and a tax authority that determine the transfer pricing methodology for future years.
To resolve these concerns, the government approved an amendment to the Direct Tax Vivad se Vishwas Bill 2020 in February.That introduced a mechanism for resolving pending tax disputes in a simple and speedy manner.
Foreign Direct Investment
Foreign Direct Investment (FDI) is a type of investment where a firm or individual from one country invests into business interests located in another country. This often includes establishing foreign business operations, acquiring foreign business assets and establishing ownership or a controlling interest in a foreign company.
This varies from Foreign Portfolio Investment (FPI) where the foreign entity only purchases equity shares of a company, without gaining control over the business.
The Pathways for India to gain FDI
India primarily receives FDI through two routes namely the Automatic Route and Government Route. The Automatic Route does not require prior approval from the government or the Reserve Bank of India. On the other hand, the Government Route necessitates approval from the government using the existing FIFP.