To Fill the Vac­uum Af­ter Scrap­ping FIPB

The Economic Times - - The Edit Page -

The gov­ern­ment has done well to an­nounce the de­ci­sion to abol­ish the For­eign In­vest­ment Pro­mo­tion Board (FIPB) in 201718. 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.

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