India-bound FDI may face thorough frisking

NEW DELHI: India is taking a fresh look at security protocols to be followed by foreign direct investors as concerns rise over money coming in from countries that New Delhi has sensitive ties with and monitors closely.
The Department for Promotion of Industry and Internal Trade (DPIIT), the finance ministry’s department of revenue and the home ministry are holding discussions on the matter, said people with knowledge of the matter.

The review comes amid the rising trend of FDI being screened worldwide. The EU recently adopted a screening framework on the grounds of security and public order. The US has stepped up scrutiny of Chinese investments in the country amid a trade war over concerns about acquisition of American assets.

Under the heightened oversight, the framework for disclosures made to the RBI could be enhanced for better capturing 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.

‘Some Concerns’
“There are some concerns,” said a senior official aware of the deliberations. “We are looking at the constituents of the security protocol… What needs to be done.”

India has widened the opening for FDI, allowing overseas money into most sectors through the automatic route, having abolished the Foreign Investment Promotion Board (FIPB) in 2017.


The government relaxed FDI norms on August 28, allowing automatic approvals for 100% FDI in mining and sale of coal, among other relaxations. Barring some sensitive sectors or select ones such as real estate, cigarettes and lotteries, the FDI policy has been substantially liberalised.

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

The current security module, worked out after discussions with concerned agencies, specifies 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.

In the wake of fresh concerns, the government is evaluating if these components need to be revisited or new ones need to be introduced.

“The idea is to see if some more elements are needed,” the official said.

Every company has to furnish a return to the RBI prior to bringing FDI into the country and after the money has flowed in under FEMA guidelines.

“We could request the RBI to seek more information in line with requirement of agencies on security front,” the official said.

A large amount of data is already captured by the RBI, he added.

Countries such as the US have a committee on foreign investment with representation from key departments such as defence, homeland security and commerce.