Keen to beef up national security, the government plans to slap new entry route restrictions on foreign direct investment (FDI) beyond 49% in eight specified ?sensitive? sectors, including airports, seaports, pharma, petroleum refining and gas pipelines. In all these sectors, 100% FDI through the automatic route is permitted now.
Once a stricter policy is in place, proposals to expand FDI beyond 49% in these sectors would have to be vetted by the Foreign Investment Promotion Board (FIPB), official sources said.
In addition, foreign investment in sectors like hazardous chemicals and industrial explosives would be entirely on the approval route.
The move follows the National Security Council (NSC) highlighting the need for security scrutiny of these sensitive sectors, but the department of industrial policy & promotion (DIPP) has turned down the NSC proposal for a separate agency?a committee of security agencies?for such scrutiny. The department said such an agency would be a redundant extra layer since FIPB can deal with security concerns.
The NSC secretariat under the Prime Minister?s Office had earlier proposed to put all sensitive sectors on the approval route, which implies prior FIPB nod. DIPP has, however, said that no policy change is required in other sectors where FDI is capped like in telecom, defence or single-brand retail, as foreign investments in these sectors are anyway subjected to government clearance. The list of ten new sectors to be put on the FIPB route is part of the ?risk management system? mooted by NSC.
DIPP has expressed reservations on NSC?s proposal for a negative list for FDI from certain sectors and origins (countries). ?DIPP is not in favour of the introduction of any system for across-the-board security vetting of FDI. Any trigger list based on sector-specific or country-specific concerns would have an immediate adverse impact on the country?s FDI inflows,? the department has said in separate communications to NSC and the concerned ministries.
However, the department has agreed to a system of post-establishment surveillance, by strengthening information gathering mechanisms, specially at the state and district levels.
DIPP also objected to NSC?s proposal for a committee of security agencies apart from FIPB to consider sensitive proposals. The department said it would represent a redundant additional layer in the FDI approval process.
?FIPB is an existing mechanism for considering all cases of FDI on the approval route. It would be hence appropriate that these concerns are addressed in the FIPB itself,? the department has said.