Govt looks at eliminating FDI security gaps through scrutiny measures

Foreign investment in strategic sectors main worry

Concerned over rising foreign direct investment (FDI) inflows into strategic sectors like telecom as well as information technology (IT) and IT-enabled Services (ITeS) through the automatic route, the government is considering eliminating the security gaps through a stringent scrutiny mechanism.

The Department for Promotion of Industry and Internal Trade (DPIIT) has proposed an online filing of advance foreign investment returns on the Foreign Investment Facilitation Portal (FIFP), which will be accessible to the Reserve Bank of India (RBI), the Ministry of Home Affairs and other security agencies. 

The government is worried that a transfer of data from India, through IT investment, may threaten national security. Besides, it has been observed that very little information comes to the government from FDI flowing through the automatic route. 

“There has been a rise in investment coming into strategic sectors. Besides, 100 per cent FDI is allowed in the IT/ITeS sectors under the automatic route. This leads to a transfer of personal data of Indian citizens, which may be exploited in a manner that threatens government security,” said an official. FDI is permitted up to sector-specific limits under the automatic or approval route. “The FIFP could be linked to the RBI’s foreign investment reporting and management system portal, where all foreign investors will be required to provide information. In case of no objection, the FDI proposal will be through the automatic or approval route,” said another official. He added that if an objection was raised, the interministerial committee headed by 

DPIIT secretary would look into it. If no objection is raised in 30 days, the proposal will be processed via the automatic or approval route. If transaction has already taken place, it will need to be withdrawn in the case of an objection. Currently, FDI proposals are processed through a standard operating procedure by the DPIIT, where a time period of 8-10 weeks has been fixed for decision making. Further, to ensure timely disposal of FDI proposals, a periodic review is undertaken by the DPIIT with other stakeholder ministries and departments. Also, the home ministry lays down guidelines for the assessment of proposals from national security point of view.