Govt lowers FDI security alert

Keen to send a positive message to Beijing when Chinese President Hu Jintao visits India on November 20, the thinking now is to identify “locations and installations” in key sectors where careful security screening will be done.

The NSC had raised the red flag on FDI in sectors such as ports and Telecom through a series of background papers and notes. Last month, however, the NSC recommended that all FDI proposals from countries of concern — China, North Korea, Afghanistan, Pakistan, Bangladesh and Island countries that are tax havens — must be screened not only at the time of approval, but also “during the entire period of their operation”.

Some of the other points made by NSC include:

• RBI should follow a “threshold criterion”, which means sounding an alert to security agencies in case FDI moves beyond a particular amount.

• In all tenders and agreements entered by Central and state governments or other Government bodies, there should be a “national security exclusion clause” that can allow government intervention at any stage.

• In case of mergers and acquisitions, the screening should be done by RBI or SEBI.

The NSC’s premise to making these suggestions was that the existing system is “flawed”. The issue was on slow burn until China made public its discomfort and frustration at the endless screenings of Chinese companies.

With the CPI(M) coming out tobat for Beijing given that one of the investments being affected was the Vizhinjam port in Kerala, the government was forced to speed up discussions on the matter and take a view.

While security concerns are being seen as a valid issue, the extreme position of the NSC seems to have been put aside now. It’s learnt that key economic and infrastructure ministries are more in favour of identifying sensitive locations and installations in sectors where any FDI proposal will have to undergo a careful screening.

Another argument being made against the country-specific approach is the possible backlash on Indian companies. Given that many Indian majors are looking at acquisitions abroad, a negative fallout of a stringent security policy cannot be ruled out.

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