Foreign Direct Investment Across Sectors Under Govt Scanner

Even as the government enables increased access to foreign capital for the country, security and transparency issues have raised concerns across sectors.

An ET report said that the government is examining security protocols to be followed by foreign direct investors from countries that it has sensitive ties with and monitor closely. It said that the department for promotion of industry and internal trade (DPIIT), the finance ministry’s department of revenue and the home affairs ministry are holding discussions on the matter.

The concerns have surfaced at a time when there is global scrutiny of FDI. It is now being said that the framework for disclosures made to the Reserve Bank of India (RBI) could be enhanced.

This is expected to better capture FDI inflow data and source of funds, especially in sectors on the automatic route. The DPIIT is also in talks with security agencies to determine whether existing safeguards need to be stepped up.

Notably, every company has to furnish a return to the Reserve Bank of India prior to bringing FDI into the country and after the money has flowed under Foreign Exchange Management Act (FEMA) guidelines.

Under the present security module, it is specified about the distance at which a facility can be set up from the international border or a military establishment. There are also restrictions on investments in certain sensitive states.

Amid fresh concerns, the government is evaluating if these components need to be revisited or new ones need to be introduced. “We could request the RBI to seek more information in line with the requirement of agencies on the security front,” the official said. A large amount of data is already captured by the RBI, the report added.

It is to be noted that over the last years, the country has expanded its access to FDI across many sectors through the automatic route, after abolishing the Foreign Investment Promotion Board (FIPB) in 2017. Further, in August, the government relaxed FDI norms including automatic approvals for 100% FDI in mining and sale of coal among other relaxations.

In India, FDI rose 28% to $16.3 Bn in the June quarter from $12.8 Bn in the year earlier. The government didn’t provide a breakup of the source countries.

Foreign investments are considered crucial for India, which needs billions of dollars for overhauling its infrastructure sector such as ports, airports, and highways to boost growth.