{"id":95050,"date":"2021-03-15T10:19:54","date_gmt":"2021-03-15T04:49:54","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=95050"},"modified":"2021-03-15T19:08:10","modified_gmt":"2021-03-15T13:38:10","slug":"need-of-specific-law-for-national-security-screening-of-inward-fdi","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/need-of-specific-law-for-national-security-screening-of-inward-fdi\/","title":{"rendered":"Need of Specific Law for National Security Screening of Inward FDI"},"content":{"rendered":"\n<p><strong>Synopsis &#8211; <\/strong>There is no clear law for<a href=\"https:\/\/forumias.com\/blog\/national-security-laws-in-india\/\"> national security<\/a> screening of inward FDI in India. It is a major<\/p>\n<h3><strong>Introduction-<\/strong><\/h3>\n<ol>\n<li>As per some media reports, India may ease restrictions on FDI by Chinese companies. They will be allowed to invest up to 25 percent in a company through an automatic route.<\/li>\n<li>Last year India tightened its FDI policy. It was aimed at preventing an opportunistic takeover of Indian firms, hit by COVID-19 pandemic induced lockdown.<\/li>\n<li>India made all Chinese FDIs subject to mandatory government screening.<\/li>\n<li>Whereas, US, Australia, Canada, and Germany used specific laws to protect their companies against such takeover.<\/li>\n<\/ol>\n<p>However, India does not have specific law which can block such attempts. Thus, India fails to differentiate between genuine National Security concerns and legitimate FDI.<\/p>\n<h5><strong>How India regulates foreign investments?<\/strong><\/h5>\n<p>India primarily uses FEMA to regulate Foreign Investments. RBI governs the <strong>Foreign Exchange Management Act (FEMA).<\/strong><\/p>\n<p><strong>Objectives of FEMA<\/strong><\/p>\n<ul>\n<li>Facilitating external trade and payments.<\/li>\n<li>Promoting the orderly development and maintenance of foreign exchange markets in India.<\/li>\n<\/ul>\n<p><strong>Shortcoming of FEMA<\/strong><\/p>\n<p>National security is unrelated to FEMA. Therefore, India needs a separate law for national security screening of inward FDI just like many other western countries.<\/p>\n<p><strong>What are the different types of legitimate threats from foreign acquisitions?<\/strong><\/p>\n<p>All countries face the difficulty of screening foreign investment in a way that separates genuine national security threats from bogus claims. In this regard, Theodore H. Moran identifies three types of legitimate threats from foreign acquisitions.<\/p>\n<ol>\n<li><strong> Dependency on a foreign supplier<\/strong> &#8211; The proposed acquisition would make the country dependent upon a foreign-controlled supplier of goods or services. These goods or services shall be crucial to the functioning of that economy.<\/li>\n<li><strong>Transfer of technology<\/strong> &#8211; The proposed acquisition allows the transfer of technology or other expertise to a foreign-controlled entity. There is a possibility that It might be deployed by the entity or its government in a manner harmful to the country\u2019s national interests.<\/li>\n<li><strong>Infiltration and sabotage<\/strong> &#8211; The proposed acquisition would allow some potential capability for infiltration, surveillance, or sabotage into the provision of goods or services, which are crucial to the functioning of that countries\u2019 economy.<\/li>\n<\/ol>\n<p>Unlike FEMA, the new FDI control law would specifically state legal criteria for FDI in an Indian corporation. Also, it would be able to check the genuine national security danger.<\/p>\n<h5><strong>What are the provisions required under the new FDI control law?<\/strong><\/h5>\n<ul>\n<li>Only the finance minister should have the right to reject strategic foreign acquisitions on national security grounds.\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li><strong>For example-<\/strong> the Australian Foreign Acquisitions and Takeovers Act, 1975 empowers the treasurer to block certain foreign acquisitions on national security grounds.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n<li>Both the power and accountability mechanisms should be part of the law.<\/li>\n<\/ul>\n<h5><strong>Way forward-<\/strong><\/h5>\n<p>National security and capital control are separate and independent policy objectives. Separate legislation for national security screening of inward FDI will be prudent.<\/p>\n<p><strong>Source- <a href=\"https:\/\/indianexpress.com\/article\/opinion\/columns\/india-foreign-direct-investments-rules-china-7225979\/\">Indian Express<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Synopsis &#8211; There is no clear law for national security screening of inward FDI in India. It is a major Introduction- As per some media reports, India may ease restrictions on FDI by Chinese companies. They will be allowed to invest up to 25 percent in a company through an automatic route. Last year India&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/need-of-specific-law-for-national-security-screening-of-inward-fdi\/\">Continue reading <span class=\"screen-reader-text\">Need of Specific Law for National Security Screening of Inward FDI<\/span><\/a><\/p>\n","protected":false},"author":10319,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,9],"tags":[1354],"class_list":["post-95050","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","tag-eco_3","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":1700782790,"cached_date":1704851510},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/95050","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10319"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=95050"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/95050\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=95050"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=95050"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=95050"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}