The Committee of Secretaries (CoS) set up to formulate changes in the foreign direct investment (FDI) policy in sensitive sectors that are now under the automatic approval route has added a rider subjecting them to post-investment surveillance.
The department of legal affairs, under the law ministry, has been asked to draft appropriate legislation enabling the government to go in for such surveillance.
The CoS has also directed the ministry of home affairs to come out with a list of “sensitive locations” where FDI will come under security scrutiny.
This is the first time that such a formal list is being put in place through the government has disallowed telecom equipment orders to Chinese companies supplying state-owned BSNL in border areas.
The CoS has also decided to tighten disclosure norms irrespective of whether the FDI proposal is under the automatic route (meaning it only requires informing the Reserve Bank of India) or the Foreign Investment Promotion Board (FIPB) route.
The 21-member committee, which met in the first week of March, also decided that all proposals that get FIPB approval but fall under the”sensitive list” or are in “sensitive locations” will need prior security clearance from the home ministry.
The CoS consensus of March 6 dilutes a February proposal by the National Security Council (NSC) designating some 15 industries as “sensitive sectors” (meaning they entail possible security risks) and subjecting them to FIPB approval.
The CoS’ decision, which will require Cabinet clearance, implies that the automatic approval benefit stays but these proposals will be subject to home ministry scrutiny once investments begin. Sensitive sectors under 100 per cent FDI automatic approval include drugs and pharamaceuticals, greenfield airport, chemicals and industrial explosives, gas pipelines, ports and private sector refining.
The CoS will consider appeals for review made by the administrative ministry concerned only for those proposals in which the home ministry has denied security clearance.
The decision by the CoS, which is headed by Cabinet Secretary K M Chandrashekhar, takes into account strong objections by several ministries such as commerce, external affairs, highways and chemicals to NSC’s suggestion that “sensitive sectors” be subject to mandatory approval by FIPB approval plus a supra-FIPB body that has representatives from security agencies.
Up FDI in telecom under automatic route to 74%: DoT
The Department of Telecommunications (DoT) has suggested raising the limit for automatic approval for FDI in telecom from 49 to 74 per cent but with post-investment scrutiny for security issues. DoT’s suggestion marks a major relaxation of FDI in telecom services. It was made at the committee of secretaries meeting on March 6. Currently, FDI in this sector under the automatic route is permitted up to 49 per cent and FDI between 50 and 74 per cent is subject to FIPB approval. For manufacturing, 100 per cent FDI is allowed under the automatic route, and operators have been lobbying for a similar relaxation for services.