NSC, DIPP clash over FDI rule change

Differences have arisen between the National Security Council (NSC) secretariat and the Department of Industrial Policy and Promotion (DIPP), under the commerce ministry, over significant changes in foreign direct investment (FDI) rules and an expanded approval mechanism for “sensitive sectors”. Late last month, the NSC rejected a DIPP proposal to reduce FDI in some “sensitive sectors” from 100 to 49 per cent on grounds that doing so could compromise security. The sectors include, among others, greenfield airports, petroleum refining, drugs and pharmaceutical, non-scheduled airlines, and international long-distance telephony. NSC had identified these sectors as “sensitive” some months ago, as part of a larger exercise by a 20-member committee of secretaries under Cabinet Secretary K M Chandrasekhar that was set up to incorporate changes in FDI rules to account for concerns voiced by security agencies. In response, DIPP suggested these sectors stay on the automatic route (meaning only the Reserve Bank needs to be informed) but FDI limits for such an approval be more than halved. This meant, any FDI proposal above 49 per cent in these sectors would have to be scrutinised by the Foreign Investment Promotion Board (FIPB), the nodal agency for FDI approvals. In two cases — for hazardous chemicals and industrial explosives — DIPP suggested maintaining the 100 per cent FDI limit but making FIPB approval mandatory in place of automatic clearances. NSC has rejected these proposals on grounds that they do not adequately address security concerns. NSC has contended that the security threat in the sensitive sectors it has identified may not be directly proportionate to the level of FDI; it may exist even at a minimal level of FDI. Accordingly, it has said that in such critical sectors, FDI should be allowed only after prior FIPB approval and these sectors should be taken off the automatic approval route . Simultaneously, DIPP strongly disagreed with an NSC proposal for a Committee of Secretaries on Financial Investments to scrutinise proposals in the “sensitive sector” list coming to FIPB. Security agencies would be represented in this committee. DIPP made it clear in its communication in February that it did not support the proposal because this would create an additional layer in the approval process. It also contended the ministry of home affairs could be associated whenever any case relating to a sensitive sector came before the FIPB. Sources say the differences of opinion would be debated once the committee of secretary met to discuss and give final shape to the new FDI policy.  – www.business-standard.com