The government is considering setting up a foreign investment regulatory mechanism for post-investment review and monitoring in the country, according to sources.
At present, the consideration is at the discussion level only, they added.
"It has been observed that all countries do oversight on the FDI (foreign direct investment), which is coming into their country. People suggest that in India also, there should be an oversight mechanism. It's a kind of oversight on money, which is coming up in the country as FDI," one of the sources said.
It can help ascertain that the FDI coming into the country is beneficial to the economy and originates from legitimate sources.
India is a major destination for foreign direct investments given its 1.4 billion market, stable policies, demographic dividend, good investment returns and skilled workforce.
The government has taken a series of measures to attract overseas investments like promoting ease of doing business through simplifying procedures and significantly reducing compliance burden for industries.
The government has also eased FDI norms in several sectors, such as space, e-commerce, pharma, civil aviation, contract manufacturing, digital media, coal mining, and defence, besides rolling out the production-linked incentive (PLI) scheme for 14 sectors like electronics and white goods.
The official added that the measures to improve ease of doing business, zero tolerance for corruption and the focused effort on emerging sectors like electronics have helped promote 'Make In India' and boost domestic and foreign investments in the country.
The 'Make in India' initiative was launched on September 25, 2014, to facilitate investment, foster innovation, build world-class infrastructure, and make the country a hub for manufacturing, design, and innovation.
Over the last 10 financial years, FDI inflow has increased by 119 per cent, reaching $667 billion compared to $304 billion in the previous 10 years (2005-14), with over 90 per cent of total FDI received through the automatic route.
Foreign direct investment in India jumped 47.8 per cent to $16.17 billion in April-June this fiscal on healthy inflows in services, computer, telecom and pharma sectors, according to government data.
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The government is also developing industrial townships to boost domestic manufacturing and attract foreign investors by providing world-class infrastructure.
India receives maximum investments from countries like Mauritius, Singapore, the US, the Netherlands, the UAE, the Cayman Islands, Cyprus, Japan, the UK, and Germany.
Sectors that attract healthy overseas inflows include services, computer software and hardware, telecommunication, pharma and chemicals.
On a question of whether India needs a dedicated law to deal with national security risks from FDI, Saurav Kumar, Partner, IndusLaw, said that a dedicated law to deal with national security risks in foreign investment may strengthen India's position with respect to international law by providing a clearly defined legal basis for rejecting investments on national security grounds.
"This would not only reduce the risk of international challenges but also showcase that India's actions are transparent, predictable, and aligned with global best practices," Kumar said.
Rudra Kumar Pandey, Partner, Shardul Amarchand Mangaldas & Co, said it is important that a specific domestic law is introduced which provides clear guidelines on parameters for processing the foreign investment application, aspects relating to a national security risk, the threshold for determining beneficial owner, the appointment of a nodal officer to interact with the applicant, providing of regular update, specific grounds of rejection and other relevant provisions to bring out the transparency in the approval procedure.
"The objective for having specific domestic law should be to bring certainty in the processing of the foreign investment application and give the investor confidence to come forward with their application," Pandey said.