The recent FDI order on increasing foreign holding of up to 74 per cent in private security agencies has created a piquant situation as the Act governing the sector stipulates that the majority stake in such companies should be held by an Indian.
According to a senior government official, the DIPP notification on the hike can attain validity only if the Private Security Agencies (Regulation) Act, 2005, is amended to suitably to incorporate the increase in FDI.
Last month, Department of Industrial Policy and Promotion permitted FDI of up to 49 per cent under the automatic route and up to 74 per cent through the approval route. Notification to this effect was issued by the Department on June 24.
Earlier, only up to 49 per cent FDI under government approval route was allowed in this sector.
As per the Act, however, foreign investment in private security agencies cannot have majority ownership which means that their stake cannot be more than 49 per cent.
“A company, firm or an association of persons shall not be considered for issue of a licence (for security agency) under this Act, if, it is not registered in India, or having a proprietor or a majority shareholder, partner or director, who is not a citizen of India,” as per the Act.
The official said that in a such situation, there are two options — one, the Act getting amended or the original FDI position being restored.
A suitable decision would be taken in this regard soon, he added.
Meanwhile, Central Association of Private Security Industry (CAPSI) has made a representation to the government expressing concern over increase in FDI for the sector.
“While one appreciates the need for foreign direct investment in capital intensive sector like infrastructure, it is difficult to understand the rationale for FDI in private security sector,” CAPSI president Kunwar Vikram Singh said.
This manpower intensive sector has thus far attracted less than a few millions worth of foreign investment and increasing it to 74 per cent will not yield any significant capital inflow into the country, he said.
Increasing FDI can also be a threat to national security as these agencies directly employ over 50 lakh workers majority being ex servicemen, para military and police forces, he added.
According to estimates, there are about 10,000 domestic small security companies in the country.