The Telegraph
Since 1st March, 1999
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Foreign funds face security test

New Delhi, June 26: Foreign direct investments beyond a certain size may be put under the scanner to check whether such massive funds flow poses any threat to the security of the country.

Such a comprehensive check, planned by the government, will also include large mergers and acquisitions that involve inflow of overseas funds.

Besides, in the interest of national security, the government may ask a company to suspend operations, take over a unit and force a closure.

A legislation along these lines is under consideration.

Top officials said the government was mulling a proposal that would allow security agencies to step in and probe large investment proposals.

This is similar to the plans to let the proposed competition commission investigate monopoly issues in mergers involving foreign companies. In cases involving the competition panel, a multinational keen on a local acquisition will have to take prior permission if the combined turnover of the foreign outfit and the target Indian company is more than $1.5 billion and the joint assets are higher than $500 million.

The existing norms on vetting investment proposals from some countries and in ‘sensitive’ sectors such as aviation and telecom will continue to be in place.

Security checks are also done on proposals for strategic regions such as the Andaman and Nicobar Islands and border areas.

The authorities had earlier refused permission to some Chinese companies to invest in Indian entities. This includes the telecom outfit, Huawei, and Hutchison Ports.

The latter was denied the permission after the home ministry sat on its proposal on terminals for more than a year.

Hutchison Ports was shortlisted by Mumbai Port Trust for two offshore container terminals. The company also lost out to the Port of Singapore Authority for a terminal in Chennai.

Oil India Limited, too, had failed to obtain a clearance from the home ministry to hire a Chinese company for some drilling operations. The company had put in the lowest bid for the work.

The PSU, which operates in the Northeast, also had to put on hold some seismic survey plans because it had hired a Chinese company.

The government is also considering a defence ministry proposal on a periodic review of investments in sensitive sectors and strategic locations. Investment funds from select countries are also part of the review.

A defence ministry source said there were instances of firms having links with al Qaida or with military establishments of neighbouring countries.

India has seen an upsurge in foreign investment over the last few years.

In fiscal 2006-07, there was a record FDI inflow of $15.7 billion, and the government has set a target of $25 billion for this fiscal.

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