The government is considering an oversight mechanism for Foreign Direct Investments (FDI) flowing into the country, taking a cue from similar systems in other countries that are high on the global investor’s radar.
“It has been observed that most countries have systems of oversight for FDI after the investments have materialised (in addition to the approval mechanism). People suggest that in India also, there should be a similar mechanism,” he added.
The proposal is at “discussion stage” and what shape it would finally take is yet to seen, a senior official said.
Already, in sectors like telecom, information technology and surveillance equipment, government has imposed the condition that the sourcing of equipment by the foreign investor should be from ‘trusted sources’. The FDI oversight mechanism will also address other vulnerabilities that might arise through this investment route, which is being promoted.
This mechanism will add a layer of post-investment scrutiny for FDI. Prior approval process is already in place for FDI depending on the sectors. Some sectors are under automatic route while proposals in others have to be cleared by the government. Some proposals also require detailed security clearance.
The European Union (EU) has an FDI Screening Regulation in force from 2020. It provides with a framework for screening incoming FDI from non-EU countries for better equipping the EU to identify, assess and mitigate potential risks certain FDIs pose to the security or public order of the Union or its Member States.
These concern access to sensitive information, security of supply of critical inputs, and control over crucial technologies. The EU is now pushing for mandatory FDI screenings for all its member states.
In the US, the Committee on Foreign Investment in the United States (CFIUS) is the federal agency that oversees FDI. It reviews FDI transactions and certain real estate transactions to determine their potential national security implications. The US also has a law that provides a framework for the review of different types of FDI transactions.
The US regulations even assess the transaction’s effect on the resilience of critical U.S. supply chains, its technological leadership in specified industries, investment trends that may have consequences for a given transaction’s impact on national security, cybersecurity risks and risks to U.S. persons’ sensitive data.