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This is an archive article published on October 19, 2007

Govt proposes sector specific guidelines for the FDI

The government has virtually decided to shelve the idea of acting as an umbrella legislation to address the national...

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The government has virtually decided to shelve the idea of acting as an umbrella legislation to address the national security concerns arising on account of foreign direct investment.

Instead, the government is now planning to come out with sector and location specific guidelines that would address these security concerns. The location-specific guidelines, for instance, would be related to sensitive locations along the international border.

According to some top government officials, even though some Government wings such as the National Security Council Secretariat (NSCS) and the home ministry favoured an umbrella legislation like the National Security Exemption Act, the feedback received from different ministries was contrary to this, as they argued that the legislation would send wrong signals to the investors.

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Sources said that the cabinet secretary KM Chandrasekhar, who chairs the Committee of Secretaries (CoS) on foreign investment, would call for a meeting with other ministries shortly to give a final shape to this proposal.

Once CoS clears the guidelines, it’ll be sent to the cabinet for approval, especially if it involves a policy decision that needs to be taken by the Government, officials added.

Economic ministries, in response to a policy paper circulated by NSCS a few months back, had voiced their reservation against such a legislation. The ministry of external affairs also pointed out that the government should not single out some countries in order to address the security concerns. The countries that were outlined include China, North Korea and other island tax havens.

It seems that this viewpoint has prevailed and the cabinet secretary, in its next meeting, is expected to discuss the parameters regarding FDI related sector and location specific security.

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Officials believe that such a measure would clearly spell out country’s concerns and the potential investors would know in advance whether they meet the criteria or not. The FDI law in the US too is framed on these lines, which clearly tells the investors in advance the country’s security concerns, officials added.

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