Indian government all set to keep an eye on FDI flows

By Vipin Agnihotri

Lucknow, India: It has come into the notice of The India Street that the Indian government is all set to put in place routines to check whether foreign investors setting up shop in India are complying with the norms prescribed for them. Initial signs are that the new norms could make it necessary that companies file an annual compliance report or an inspection system could be put in place.

Talking exclusively to The India Street, one government official said: "We are yet to decide what kind of monitoring we want to do but the idea is to ensure that companies do not have to face inspectors form another government agency and at the same time comply with the undertaking given to us.”

It is worthwhile remembering that the move follows apprehensions about non-compliance of FDI norms by Hutch Essar, however the government did not find any sort of evidence of the sectoral caps being breached. There is a strong possibility that the finance ministry, which has proposed putting in place few guidelines, was expected to come up with a concrete proposal over the next few weeks.

The pivotal factor here is that North Block had suggested that the department of industrial policy and promotion (DIPP) deal with the issue taking into account the detailed review of the FDI guidelines but in the absence of any proposals the issue is expected to be dealt with later. Point to be noted here is that the Foreign Investment Promotion Board (FIPB), which cleared Vodafone's acquisition of Hutch Telecom International's stake in Hutch Essar last month, had also asked DIPP as well as the finance ministry to put in place norms that assist companies come clean on indirect shareholding.

"While the chances of a breach of cap were less when a company was planning to enter the Indian market since FIPB still vetted a large number of proposals, the possibility of violation at a later date was not ruled out since no government agency was monitoring it," pointed out Avadh Singh, Finance journalist based at India.

Generally speaking, there are 19 activities that NBFCs (non-banking finance companies) can undertake. However, there is a chance that the government allows a company to carry out one or two businesses but the company could actually be doing all 19. In other word, there is no mechanism to check such violations at the present juncture.

Keeping aside the monitoring routine, the government and Reserve Bank of India (RBI), the nodal body for automatic investment proposals that do not need prior approval from any agency, have to decide on which agency should be given the task.

Not so long ago, the security agencies have also recommended that the government keep tabs on foreign companies investing in India. Though, a proposal was opposed by both North Block and DIPP saying that they do not have the ability to track investment.

There has been no progress on the National Security Council's proposal to put in perspective a new law to ensure that foreign investors did not turn into a threat to national security with most economic ministries opposing the move. If sources are to be believed, the NSC Secretariat is expected to put forward a draft Bill for other ministries in the coming months.