The Center is considering a foreign investment regulation mechanism for FDI supervision

New Delhi: According to sources, the government is considering setting up a foreign investment regulatory mechanism for post-investment review and monitoring in the country.

Currently, the considerations are only at the discussion level, they added.

“It has been observed that all countries exercise surveillance over the FDI (foreign direct investment) that flows into their country. People suggest that there should be a surveillance mechanism in India too. This is a kind of supervision over money that will enter the country as FDI,” one of the sources said.

It can help determine whether FDI flowing into the country is beneficial to the economy and comes from legal sources.

India is a major foreign direct investment destination due to its market of 1.4 billion, stable policies, demographic dividend, good investment returns and skilled labor.

The government has taken a number of measures to attract foreign investment, such as promoting ease of doing business by simplifying procedures and significantly reducing regulatory compliance burdens on the industry.

The government has also relaxed FDI norms in several sectors such as space, e-commerce, pharma, civil aviation, contract manufacturing, digital media, coal mining and defense and also introduced Production Linked Incentive (PLI) scheme for 14 sectors such as electronics and household appliances.

The official added that measures to improve ease of doing business, zero tolerance for corruption and focusing efforts on emerging sectors such as electronics have helped in promoting the ‘Make In India’ initiative and boosting domestic and foreign investments in the country.

The ‘Make in India’ initiative was launched on September 25, 2014, to facilitate investment, support innovation, build world-class infrastructure and make the country a manufacturing, design and innovation hub.

Over the last 10 financial years, FDI inflows have increased by 119 per cent, reaching USD 667 billion compared to USD 304 billion in the previous 10 years (2005-14), with over 90 per cent of the total FDI received through the automatic route.

According to government data, foreign direct investment in India increased by 47.8 per cent to USD 16.17 billion in April-June this fiscal, led by healthy inflows in the services, computer, telecom and pharmaceutical sectors.

The government is also developing industrial estates to boost domestic manufacturing and attract foreign investors by providing world-class infrastructure.

India receives maximum investments from countries like Mauritius, Singapore, USA, Netherlands, UAE, Cayman Islands, Cyprus, Japan, UK and Germany.

Sectors attracting a significant influx of foreign workers include services, software and hardware, telecommunications, pharmaceuticals and chemicals.

When asked whether India needs a special law to deal with national security threats arising from FDI, Saurav Kumar, partner at IndusLaw, said a special law to deal with national security threats in foreign investments can strengthen India’s position vis-à-vis international law by providing a clearly defined basis legal refusal to invest on national security grounds.

“This would not only reduce the risk of international challenges, but also demonstrate that India’s actions are transparent, predictable and in line with global best practices,” Kumar said.

Rudra Kumar Pandey, partner at Shardul Amarchand Mangaldas & Co said it is important to introduce a special national law that will provide clear guidelines on parameters for processing foreign investment application, national security risk aspects, threshold for determination of beneficial owner, appointment of officer contact point with the applicant, regular updates, detailed information on the grounds for rejection and other relevant provisions to ensure transparency of the approval procedure.

“The purpose of having a dedicated domestic law should be to provide certainty in the processing of foreign investment applications and to provide investors with confidence in submitting their application,” Pandey said.