Cos Ferrying Cash for Banks Caught in FDI Policy Tangle
DIPP puts cos under logistics, allowing 100% FDI; but MHA says PSARA rules, capping FDI at 49%
New Delhi: Companies ferrying cash for banks are caught in a policy tangle with the home ministry insisting that 100% foreign direct investment (FDI) cannot be allowed in them. The home ministry has said their activities come under the Private Security Agencies Regulation Act (PSARA) that allows only 49% FDI. The Department of Industrial Policy and Promotion (DIPP) had bracketed them as part of the logistics sector in which 100% FDI is allowed.
DIPP is reconsidering its stance and a clarification is expected soon but it's not clear how this will impact companies in which FDI exceeds 49% in case the home ministry view is accepted.
India’s big private banks that are majority foreign owned may also find themselves on the wrong side of such a policy in respect of the wholly owned subsidiaries set up by them to manage cash logistics. Their investment in such units would be considered FDI as per the current policy. The home ministry has issued guidelines to the department of financial services and the DIPP to allow only 49% FDI in cash logistics because of the use of security guards and armoured vehicles integral to such services.
“This matter is related to the security of the country. These companies use arms, bullet-proof vehicles and therefore they should be regulated as private security agencies and not lust logistics providers,” said Devraj Singh, partner, EY. DIPP had allowed 49% FDI in Singpai Pte for cash logistics in 2012 and later 100% in CMS Info- system. Singpai Pte had sought 49% FDI as per the PSARA Act, said a senior official familiar with the matter. CMS Infosystem however was considered a cashhandling company only providing logistics services and not manned security guards as per the PSARA Act.
Under the previous United Progressive Alliance government, a panel had recommended liberalizing the FDI limit in private security agencies to 100% from 49%. The suggestion had been opposed by the Bharatiya Janata Party, which heads the current government.
DIPP is holding talks with the home ministry and department of finance on a clarification.
FDI inflows to India increased by over 40% to $29.44 billion (.`2.02 lakh crore) in April-December from $21.04 billion (.`1.45 lakh crore) in the year earlier.