New body to enforce FDI ban strictly

NEW DELHI: The government is likely to subject all investments in sectors closed to foreign investments to greater scrutiny through a new oversight body to ensure that foreign capital does not slip into these sectors undetected.

There have been allegations that under the new foreign direct investment policy overseas investments could be routed into the sectors closed to such investments. The prohibited sectors include multi-brand retail, gambling, betting, lottery, atomic energy and plantation.

“The proposal was discussed at a meeting attended by officials from various ministries including the department of industrial policy and promotion, finance ministry, corporate affairs and a final view is to be taken shortly,” a government official privy to the deliberations told ET.

The new FDI policy says that any company that has more than 50% local holding and has the right to appoint a majority of its board members will be considered an Indian company.

All the investment such an Indian company makes into a subsidiary or a joint-venture will be considered as Indian investment even if the company has foreign investments.

This means that an Indian company as per the new definition but having foreign investment could invest in sectors closed to foreign investment through a subsidiary structure. The government has tightened the rule to say that such a company will not be allowed to invest in sectors in which FDI is prohibited. Only an Indian company that has nil foreign direct investment can invest in these sectors.

The proposed oversight body will determine the foreign investment component in a company or essentially specify if an entity is completely Indian owned to invest in these sectors,” the official said.

He said the move will ensure that foreign investment does not enter in such sectors indirectly through layered corporate structures when the government has intentionally not opened them.

Experts, however, term such a move as retrograde and one that would create one more unnecessary layer of clearance.

“This would mean an additional layer of scrutiny. Typically foreign investors are wary of dealing with multiple authorities. In an era of single window clearance, this could be retrograde. Such oversight function, if required should be undertaken by FIPB in consultation with the relevant Administrative Ministries,” said Goldie Dhama, associate director, PricewaterhouseCoopers.