Unified Single-window Clearance System | 24 Nov 2020

Why in News

The government is working on a new, unified single-window clearance system for foreign direct investment (FDI) proposals.

  • It is taking up several other active reform-related steps related to sovereign wealth funds and tax dispute settlements to continue the momentum of reforms. It also seeks feedback from global investors to make the system more functional.

Key Points

  • Background:
    • Despite the presence of several IT platforms for investing in India such as the Foreign Investment Facilitation Portal (FIFP) and state single-window clearances, investors need to visit multiple platforms to gather information and obtain clearances from different stakeholders.
  • About Single-window System:
    • To address this, the creation of a centralised Investment Clearance Cell was proposed by the DPIIT.
      • The cell will be a one-stop digital national portal that integrates the existing clearance systems of various ministries/departments of the government and will have a single, unified application form.
    • It would provide end-to-end facilitation support, including pre-investment advisory, information related to land banks and facilitating clearances at Central and state level.
    • It will allow digital access to regulators, policymakers and facilitators at one point irrespective of their geographical location and also provide time-bound approvals and a real-time status update to investors.
    • It will enable the potential investor to interact with all the ministries whose approvals are required, in the central government as well as in the states.
  • Sovereign Wealth Funds:
    • Despite the Covid-19 pandemic, the government has seen fresh interest from large sovereign wealth funds looking to invest in the country.
      • In the Budget 2020-21, the government promised 100% tax exemption to the interest, dividend and capital gains income on the investment made in infrastructure and priority sectors before 31st March, 2024 with a minimum lock-in period of 3 years by the Sovereign Wealth Fund of foreign governments.
      • A sovereign wealth fund is a state-owned investment fund composed of the money generated by the government, often derived from a country's surplus reserves.
    • Despite lockdowns, the National Infrastructure Investment Fund (NIIF) actively engaged with the investors to find out the best way to facilitate them with the benefits of the tax exemptions.
  • Advance Pricing Agreements and Tax Dispute Settlements:
    • Various MNCs highlighted the concerns about delays in bilateral Advance Pricing Agreements (APAs) and tax dispute settlements.
      • APA is an agreement between a taxpayer and tax authority determining the transfer pricing methodology, for pricing the taxpayer’s international transactions for future years.
      • In February 2020, Government approved an amendment to the Direct Tax Vivad se Vishwas Bill 2020 which provides a mechanism for resolution of pending tax disputes in a simple and speedy manner.
    • India needs a robust system to resolve disputes on an ongoing basis instead of waiting for specific schemes to be announced for them. There should be simultaneous tracking of disputes and efforts to settle them at the earliest.

Foreign Direct Investment

  • It is an investment made by a firm or individual in one country into business interests located in another country.
  • Generally, FDI takes place when an investor establishes foreign business operations or acquires foreign business assets, including establishing ownership or controlling interest in a foreign company.
  • It is different from Foreign Portfolio Investment (FPI) where the foreign entity merely buys equity shares of a company.
    • FPI does not provide the investor with control over the business.
  • Routes Through which India gets FDI:
    • Automatic Route: In this, the foreign entity does not require the prior approval of the government or the Reserve bank of India (RBI).
    • Government Route: In this, the foreign entity has to take the approval of the government through the existing FIFP.

Source: TH