Outbound investments from India to the US face scrutiny on national security grounds. A thorough understanding of the review process and early consultation with regulators are crucial in achieving a successful outcome. Mark Plotkin, David Fagan and Adam Smith explain

Indian foreign direct investment (FDI) flows to over 120 countries, with the US among the largest recipients. The Indian Ministry of External Affairs has described the US market as “the most important destination of Indian investment abroad”. Indian companies undertook more than 140 acquisitions in the US between 2007 and 2009, almost half being in the information technology sector with the remainder mostly divided between manufacturing and pharmaceuticals. Recent transactions include Tata Chemicals’ US$1 billion acquisition of General Chemical Industrial Products in January 2008, Rain Calcining’s US$595 million acquisition of CII Carbon in June 2007 and Wipro’s US$547 million acquisition of Infocrossing in August 2007. While the size of some transactions during the 2007-2009 period is unknown, those announced total nearly US$5.4 billion.

All Indian businesses considering investments in the US must consider relevant US laws and institutions that govern, restrict and in some cases prohibit FDI. The national security-based regulatory review process, administered by the Committee on Foreign Investment in the US (CFIUS), is a central concern.

CFIUS law and mechanics

CFIUS operates pursuant to section 721 of the Defense Production Act, 1950, commonly called the “Exon-Florio Amendment”. The name originates from the original statutory amendment in 1988 that provided the president with express authority to review the national security effects of foreign acquisitions, mergers and takeovers. The law was amended by the Foreign Investment and National Security Act (FINSA) of 2007, making CFIUS the regulatory body that administers the president’s authority to review inbound M&A deals.

You must be a subscriber to read this content, or you can register for free to enjoy the current issue.


Mark Plotkin is a partner and David Fagan and Adam Smith are associates in the Washington office of international law firm Covington & Burling LLP.