Law ministry approves screen test for FDI

The law ministry has given its approval for the long-pending proposal of enacting a new law to screen foreign direct investment (FDI). A final call is awaited for the proposed legislation and the final draft is expected to come out by the year-end after which it will be placed before Parliament for approval.

In this wake, the Cabinet secretariat is trying to remove the roadblocks that are critical for sensitive sectors such as telecom. Feeling the need of a new empowered legislation with a backing of the law ministry, the Cabinet secretariat’s decision would be strategic where FDI would not be allowed through the automatic route.

Few cases would require the Foreign Investment Promotion Board (FIPB) route to get approval. The FIPB may allow the automatic route but there will be post-sanction scrutiny in some cases.

The new law is expected to outline the guidelines for security screening of FDI on the basis of sensitive locations and sectors. Taking on a security umbrella, the FIPB would scrutinize foreign firms with a dubious background, irrespective of the country of origin or sector of operation.