Government Mulls New FDI Oversight Mechanism

The government is considering the establishment of a foreign investment regulatory mechanism to monitor post-investment activities. This would ensure that foreign direct investments (FDI) are advantageous to India's economy. Despite being in the discussion phase, the initiative aims to attract legitimate investments and enhance the country's ease of doing business.

The government is exploring the possibility of instituting a foreign investment regulatory mechanism for post-investment review and monitoring, according to inside sources.

Currently, the talks are in the preliminary discussion phase, the sources added.

''It has been noted that most countries conduct oversight on the FDI entering their borders. In India, there's a suggestion for a similar oversight mechanism to oversee the influx of FDI,'' a source mentioned.

This initiative would help verify that the FDI entering the country is beneficial to the economy and originates from legitimate sources.

India has become a prime destination for FDI due to its massive 1.4 billion market, stable policies, demographic advantages, good returns on investment, and skilled workforce.

The government has enacted several measures to attract global investments, including simplifying business procedures and reducing industry compliance burdens.

Furthermore, FDI norms in various sectors such as space, e-commerce, pharma, civil aviation, contract manufacturing, digital media, coal mining, and defence have been relaxed. The production-linked incentive (PLI) scheme covering 14 sectors like electronics and white goods is also in place.

Officials highlighted that measures to improve the ease of doing business, zero tolerance for corruption, and a focus on emerging sectors have helped boost both domestic and foreign investments under the 'Make In India' initiative.

The 'Make in India' program, introduced on September 25, 2014, aims to facilitate investment, foster innovation, and develop world-class infrastructure, making the country a hub for manufacturing, design, and innovation.

Over the past decade, FDI inflow surged by 119%, reaching USD 667 billion, compared to the previous decade's USD 304 billion, primarily through the automatic route.

FDI in India surged by 47.8% to USD 16.17 billion in the April-June quarter, with significant inflows in services, computer, telecom, and pharma sectors, based on government data.

The government is also developing industrial townships to bolster domestic manufacturing and attract foreign investors by offering world-class infrastructure.

Investment sources primarily include countries like Mauritius, Singapore, the US, the Netherlands, UAE, Cayman Islands, Cyprus, Japan, UK, and Germany.

Key sectors attracting healthy overseas investments encompass services, computer software and hardware, telecommunication, pharma, and chemicals.

In response to whether India needs a dedicated law for FDI-related national security risks, Saurav Kumar, Partner at IndusLaw, stated that such a law could enhance India's position by delineating clear legal bases for rejecting investments on national security grounds.

Rudra Kumar Pandey, Partner at Shardul Amarchand Mangaldas & Co, emphasized that a specific domestic law with clear guidelines for processing foreign investment applications and national security assessments would add transparency and build investor confidence.

(With inputs from agencies.)