Govt to consider foreign investment regulatory mechanism for FDI review; Inflows up 47% in Q1FY25

The government is considering setting up a foreign investment regulatory mechanism for post-investment review and monitoring in the country. According to the news agency PTI, the consideration is only at the discussion level. Sources told PTI that an oversight mechanism for foreign direct investment (FDI) should exist in India. It is a kind of oversight of money entering the country as FDI. It can help ascertain that the FDI coming into the country benefits the economy and originates from legitimate sources.

India is a major destination for foreign direct investments given its 1.4-billion market, stable policies, demographic dividend, good investment returns and skilled workforce. The government has taken a series of measures to attract overseas investments, such as promoting ease of doing business through simplifying procedures and significantly reducing the industry's compliance burden.

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The government has also eased FDI norms in several sectors, such as space, e-commerce, pharma, civil aviation, contract manufacturing, digital media, coal mining, and defence. It has also rolled out the production-linked incentive (PLI) scheme for 14 sectors, such as electronics and white goods.

Some measures to improve the ease of doing business, zero tolerance for corruption, and a focused effort on emerging sectors like electronics have helped promote 'Make In India' and boost domestic and foreign investments.

FDI inflow in India

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

FDI in India jumped 47.8 per cent to $16.17 billion in April-June this fiscal on healthy inflows in the services, computer, telecom, and pharma sectors. The government is also developing industrial townships to boost domestic manufacturing and attract foreign investors by providing world-class infrastructure.

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India receives maximum investments from Mauritius, Singapore, the US, the Netherlands, the UAE, the Cayman Islands, Cyprus, Japan, the UK, and Germany. Sectors that attract healthy overseas inflows include services, computer software and hardware, telecommunication, pharma, and chemicals.

Saurav Kumar, Partner, IndusLaw, told PTI that a dedicated law to deal with national security risks in foreign investment may strengthen India's position with respect to international law by providing a clearly defined legal basis for rejecting investments on national security grounds. "This would not only reduce the risk of international challenges but also showcase that India's actions are transparent, predictable, and aligned with global best practices," Kumar said.

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Rudra Kumar Pandey, Partner, Shardul Amarchand Mangaldas & Co said it is important that a specific domestic law is introduced which provides clear guidelines on parameters for processing the foreign investment application, aspects relating to a national security risk, the threshold for determining beneficial owner, the appointment of a nodal officer to interact with the applicant, providing of regular update, specific grounds of rejection and other relevant provisions to bring out the transparency in the approval procedure.

"The objective for having specific domestic law should be to bring certainty in the processing of the foreign investment application and give the investor confidence to come forward with their application," Pandey said.