The Telegraph
Since 1st March, 1999
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Security safeguard in new law on FDI

New Delhi, Aug. 17: The government is planning to enact a law to judge security concerns in foreign investment proposals. The aim is to speed up the approval process through a set of criteria that will quickly assess the merits of foreign investment proposals in sensitive sectors such as telecom, aviation, ports and insurance.

Recently there were instances of FDI proposals getting blocked and foreign companies barred from tenders of PSUs on security grounds. In many cases, it was companies from China that got entrapped by the security net.

“The bill (National Security Exception Act) is in a formative stage,” commerce and industry minister Kamal Nath said after inaugurating the marketing summit of the Confederation of Indian Industry (CII).

“There are some concerns over FDI. In cases like these, the government steps in,” he said.

Besides FDI, the bill would also assess participation of foreign firms in global tenders floated by public sector companies and government departments.

Nath said such a law would have no impact on FDI. “Other countries, too, have such arrangements to check FDI from undesirable countries in sensitive sectors... the proposed law would not send any wrong signals,” he said.

The commerce minister said the law would not be applied retrospectively.

The first draft of the bill has been finalised by the secretariat of the national security council.

There is no framework now to judge FDI proposals from the perspective of national security. Such proposals are decided on an ad hoc basis by the government after ascertaining the views of intelligence agencies.

A major casualty of this approach is FDI in telecom. The notification on FDI norms for this sector was delayed by differences over whether foreign nationals can take up top jobs in telecom companies.

A proposal to assess the security issue on the basis of the extent of foreign holdings in a telecom company reportedly did not find favour with communications minister Dayanidhi Maran.

Maran wanted such conditions to be standardised, particularly on appointments.

He has obtained an extension of the July 3 deadline on the notification to give DoT time to prepare a fresh proposal. The issue has assumed importance since Essar sought a clarification from the government on the indirect stake of the Egyptian company Orascom — which offers cellular service in Pakistan — in Hutchison Essar Limited.

In another instance, the home ministry refused to allow China’s Hutchison Port to take part in the container terminal project in Mumbai, though the company was shortlisted by the Mumbai Port Trust.

Cola row

At the CII summit, Nath also said there was “no need to act in haste” in the cola controversy. “There is no need to act in haste. And at the same time we need to follow the process of law,” Nath said in response to queries on the ban imposed on Coca-Cola and Pepsi by some states after pesticides were detected in some samples of the companies’ soft drinks by the Centre for Science and Environment.

Nath said, “Whenever anything like this happens, it affects the credibility of India. Obviously, people start thinking twice. So far, there has been no impact on FDI. But we have to be very careful about it in future.”

The minister said the country needs to ensure the findings are accurate and then follow a due diligence process.

His comments seemed to echo the views of the apex chambers, the CII and the Federation of Indian Chambers of Commerce and Industry (Ficci), who defended the soft drinks companies soon after the controversy surfaced.

Declining to share his views on a blanket ban on colas, Nath said, “Bengal is also a Left-ruled state, and it has taken an diametrically opposite stand to the issue.” While the Marxist-ruled state of Kerala has banned colas, the Bengal government has ruled out any immediate ban on these soft drinks.

SEZ expansion

Nath said the limit on the number of SEZs — it is 150 now — will be raised, following the strong response from manufacturing and services companies.

“There are no final limits to the number of SEZs that can be established. The limit of 150 was set to see the response. Now, a review will be held (before more SEZs are approved),” said Nath.

The government has so far received about 388 proposals, including those from Reliance, Infosys, Wipro, DLF and ONGC.

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