International companies can have majority ownership in private security firms with the government deciding to allow 74% foreign direct investment (FDI) in the sector. Earlier, FDI in the security industry was capped at 49%. The new rules, said industry watchers, will open up further funding in the sector, which is estimated to be worth Rs 40,000 crore and employs more than 70 lakh people.
Though the government has allowed 74% FDI in private security agencies, only 49% is allowed under the automatic route, meaning no government approval is required. But for anything beyond 49% and up to 74%, government nod is a must. The changes could benefit some of the leading private security firms which have been rooting for an increase in FDI limit. The major players in the Indian security sector are SIS, Checkmate, Peregrine, Tops, Securitas, G4S and Premier Shield.
Industry observers said that the relaxed FDI norms will also aid in consolidation in the industry, which is highly unorganized. Mergers and acquisitions have been far and few in the sector which, according to a FICCI-Grant Thornton report, is expected to touch Rs 80,000 crore by the end of this decade, driven by increasing crime rates, shortage of police personnel, frequent terror attacks and growing urbanization. The last strategic deal happened in 2013 when the UK-based OCS acquired a stake in Central Investigation and Security Services.
It may be noted that a few days ago, the government clarified that private security agencies include any person (other than any governmental agency) providing private security services such as training of private security guards and deployment of armoured cars. The term, however, doesn’t include companies involved in cash logistics or companies ferrying cash for banks.
