To fill the vacuum after scrapping fipb

To fill the vacuum after scrapping fipb

The government has done well to announce the decision to abolish the Foreign Investment Promotion Board (FIPB) in 2017-18. More than 90% of the foreign direct investment, in any case, comes through the automatic route and sectoral regulation has also become far more robust, obviating the need for the board that was set up in early 1990s. Advanced countries, by and large, welcome all foreign investment, but have institutional mechanisms to block any foreign investment proposal that hurts national interest and security. India must also have such institutional safeguards. The RBI is best placed to play the nodal agency for review; after all, all foreign investment into the country has to comply with its foreign exchange reporting requirements.
The government should enact a law to give the RBI powers that go beyond collection of information to refer proposals for vetting for possible security implications to relevant ministries of the Union government. The executive government can then decide on whether to prohibit or suspend a transaction. That decision and the factors that guided the decision must be placed before a committee of the legislature, for the sake of transparency.
Globally, there are varying institutional arrangements, backed by law, to determine if a foreign investment proposal threatens national security. The Committee on Foreign Investment in the US, for example, is required to give Congress confidential briefings on request. The President can act in rare cases. Whereas the Australian law empowers the Treasurer to block foreign investment proposals. India needs not just a robust arrangement but also stringent timelines to conclude an RBI-initiated review and report to Parliament. Most FDI proposals should sail through, anyhow.