The government is set to limit foreign direct investment (FDI) in private security services at 49%, a decision likely to trigger consolidation and ownership change in the Rs 10,000-crore domestic security services industry. Several foreign security firms currently have presence in India.
The development is expected to help home-grown security firms like SIS and Tops to consolidate their position in the fast-growing sector and force foreign players like Group4S to restructure their holdings and offload the surplus FDI in favour of domestic players. The domestic private security industry, growing at 25% annually, employs over 7 million.
Thanks to the lack of specific rules, any foreign company can hold up to 100% stake in Indian security companies. The Union home ministry has now stepped in to limit their participation in Indian companies citing security reasons.
“Foreign shareholding in domestic private security firms will be restricted to a maximum of 49%,” sources said. Private security firms have been seeking clarification from the home ministry over foreign shareholding in security agencies for a while.
“The Private Security Agencies (Regulation) Act, 2005 does not specify foreign shareholding. There is nothing in the form of numbers,” Central Association of Private Security Industry chairman Kunwar Vikram Singh said.
The private security services industry is largely unorganised. Foreign security firms have been setting up business in India without any restrictions and Indian partners have been happy to welcome the expertise their foreign tie-ups bring.
With the policy on FDI limits, foreign companies will have to take permission from the Foreign Investment Promotion Board before investing in India.
Recently, proposals from G4S and SDB Cisco were rejected by the FIPB on the home ministry’s insistence. In 2005, foreign security companies were barred from investing beyond 49%. But in 2006, the DIPP allowed FDI under the automatic route.
Source: Financial Express