Modi government mulls increasing scrutiny on FDI inflows in sectors crucial to national security

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Published: February 18, 2020 10:35:53 AM

India received $26 billion FDI in the first six months of the financial year that started April 2019, up from $22 billion in the whole of the previous year, according to the industry department.

India received $26 billion FDI in the first six months of FY 2020.

India is considering closer scrutiny of foreign direct investment in sectors crucial to national security, a top government official said, the latest nation looking to tighten oversight amid growing unease about China’s acquisition of tech assets.

The industries department is in talks with the ministries looking at finance and internal security, and any changes would include transactions under the so-called automatic route, Industry Secretary Guruprasad Mohapatra said in a recent interview in New Delhi. Under current rules, the Reserve Bank of India seeks some disclosures from companies applying to invest.

Prime Minister Narendra Modi’s administration considers India to be one of the most open economies for overseas investment after it eased regulations for several sectors in the past five years. However, governments across the globe have been increasingly blocking the entry of foreign investment on national security grounds, according to a December report from the United Nations Conference on Development and Trade, which identified at least 20 such planned takeovers exceeding $50 million from 2016 to 2019.

“There are some sensitivities in certain strategic sectors on automatic route so discussion is on to see if there should be any intervention,” Mohapatra said. He declined to name the sectors.

India permits foreigners to directly invest in areas including oil exploration and airports without seeking any government approvals, in other words, these are ushered in through the automatic route. As much as 49% of overseas investment is allowed in a few industries — such as telecom services — through the automatic route.

The European Union in 2018 approved new rules that will allow EU governments to request information and offer comments on a foreign direct investment in a particular member country. Officials hope the mechanism will provide a broader overview of Chinese investment in Europe amid concerns that companies with indirect ties to the state are snapping up strategically important businesses.

India received $26 billion FDI in the first six months of the financial year that started April 2019, up from $22 billion in the whole of the previous year, according to the industry department.

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