Let us begin from the beginning. FIPB is an inter-ministerial body of senior secretaries that considers foreign direct investment proposals of up to a value of Rs 600 crore. It was set up in 1992, the first such body in post-reforms India to work on getting foreign direct investment (FDI) into the country.
It is not that controversies never dogged FIPB. But it could be argued that it faced no major controversies in the last 25 years of its existence. What, though, happened three days ago was a little different and unusual – it figured in a probe by the Central Bureau of Investigation (CBI). The charges being investigated by CBI are whether there was any criminal conspiracy in the manner in which INX Media, a television company, was allowed to bring in foreign investment far in excess of the amount the FIPB had permitted.
In July 2007, FIPB, chaired by the economic affairs secretary in the finance ministry, had approved INX Media’s proposal to sell shares to three foreign entities that would result in a foreign investment inflow of Rs 4.62 crore. The company had also indicated that it would seek further foreign investment in its subsidiary. FIPB, however, permitted an investment of Rs 4.62 crore and specified that any fresh foreign investment would be subject to clearance, following a separate and subsequent application.
But it so transpired that INX Media had already brought in foreign investment of over Rs 300 crore, though the permission it had got was for only Rs 4.62 crore. In early 2008, FIPB became aware of the violation and informed the income-tax authorities that it was looking into the matter. It even sought an explanation from INX Media for what seemed to be a clear violation of the rules.
At this stage, things took a different turn. Following INX Media’s explanation of why it had brought in foreign investment in excess of the approved amount, the media company was allowed to make a fresh application and FIPB approved the investment. The First Information Report (FIR) filed by CBI says: “The concurrence to the proposed investment which had already been made without the approval of the finance ministry showed the mala fide and dishonest intention on the part of the officials of the ministry.”
What is not clear from the facts available in the public domain so far is whether FIPB had any specific reasons in support of its decision in allowing the foreign investment in excess of the permitted amount. But CBI’s FIR is banking on the change in stance FIPB adopted in early 2008, when it had actually alerted the income-tax authorities about the violation committed by INX Media. The investigating agency is also questioning the logic of FIPB’s decision, presumably taken in the latter half of 2008 when the permission for the excess foreign investment was granted ex post facto.
Precise dates of when these decisions were taken by FIPB and when these underwent a change cannot be ascertained from the publicly available documents. But what can be safely concluded is that two IAS officials, who later occupied high-profile positions as regulators, had headed FIPB during that period – Duvvuri Subbarao and Ashok Chawla.
Subbarao was the finance secretary in charge of the economic affairs department till early September of 2008, when he was made the Governor of the Reserve Bank of India – a position that he held till 2013. Subbarao had taken charge of the economic affairs department in May 2007 and he was made the finance secretary in charge of the same department in July 2007.
Ashok Chawla succeeded Subbarao as the economic affairs secretary in September 2008 after his stint in the civil aviation ministry as its secretary. He continued to remain in the finance ministry and assumed charge as the finance secretary a year later. After his retirement, Chawla had a five-year tenure as the chairman of the Competition Commission of India from October 2011.
It is clear that the decisions to grant permission to INX Media to raise only Rs 4.62 crore and send the letter to the media company seeking its explanation for why it violated the rules were taken when Subbarao was at the helm of the FIPB.
What is not clear is if the subsequent ex post facto clearance was given by FIPB after September 2008, when it was headed by Chawla.
In both the cases, the final decision of FIPB was cleared by the finance minister at that time, which is where the role of the political leadership enters.
Either way, two of India’s well-known civil servants and former regulators are likely to come under CBI scrutiny as a result of the decisions taken by the FIPB in the INX Media case.
It is ironical that this controversy has surfaced at around the same time when the finance ministry has sent its proposal to the Union Cabinet for abolishing FIPB in pursuance of a decision announced by Finance Minister Arun Jaitley in the Union Budget for 2017-18 which he presented on February 1.
The coincidence is remarkable. The FIPB was the first institution created in post-reforms India to attract foreign direct investment into the country. Just before the FIPB is dissolved in the next few weeks, the country would be witness to the unravelling of a sequence of events on how and why the decisions pertaining to INX Media were taken by the FIPB in July 2007 and early 2008 in a certain manner and why the stance changed subsequently.
Disclaimer: Views expressed are personal. They do not reflect the view/s of Business Standard.