FDI in Sectors Crucial To National Security May See Greater Scrutiny

Top government officials revealed that India is contemplating closer scrutiny in sectors of the economy that are crucial to the national security. This comes after a growing unease about China’s acquisition of tech assets.

Guruprasad Mohapatra, Industry Secretary, in a recent interview in the national capital said that 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. As per the current norms, the Reserve Bank of India seeks some disclosures from companies applying to invest.

The Modi government views India as one of the most open economies for foreign investments after it further eased the foreign direct investment rules and regulations across several sectors over the past five years. However, there is a growing trend in governments across the globe of blocking the entry of overseas investments on the grounds of national security. As per a December report from the United Nations Conference on Development and Trade, which identified at least 20 such planned takeovers exceeding USD 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 refused to name the sectors.

In sectors like oil exploration and airports, the government of India allows foreign direct investment via the automatic rout. As much as 49 per cent of overseas investment is permitted in a few industries - such as telecom services - through the automatic route.

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