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New FDI law: MHA for flexible security filter

Rather than putting entire countries under the Foreign Direct Investment (FDI) watchlist in the name of national security,the Union Home Ministry is pushing...

Written by Amitav Ranjan | New Delhi | Published: July 27, 2009 5:22:28 am

Rather than putting entire countries under the Foreign Direct Investment (FDI) watchlist in the name of national security,the Union Home Ministry is pushing for an overarching Foreign Investments (National Security Concerns) Act,which will “empower the Centre to take all steps to ensure that national security is not adversely threatened or affected by inflows of foreign investments”.

The new law will allow the Centre to notify “any authority or agency to investigate any matter which,in its opinion,is likely to have an adverse impact on the national security,defence of India or capital markets”.

The silence on listing countries follows the Foreign Ministry’s advice to insert a clause that would address India’s national security concerns “without evolving a complex system that identifies sensitive countries,sectors or locations”.

“An umbrella legislation can be enacted in order to enable the insertion of such a clause in all contracts and tenders,and this should be done in a manner that does not impinge on or affect our external relations in an adverse manner and is consistent with our international obligations and is defensible in courts of law,” it said.

The law,first suggested by the Law Ministry,was also backed by the Defence Ministry,which,while advocating a National Security Exception Clause to screen foreign investments,sought a proviso in pre-qualification papers by which the Centre would have the “right to determine the eligibility of a vendor on grounds of national security and defence without assigning any explanation”.

However,until the law is enacted,the Home Ministry has proposed that guidelines be framed to keep tabs on the source of foreign investment,including sovereign wealth funds,with the foreign entity or investor pledging that it “will not undertake any activities detrimental to national strategic security and economic interests”.

While investments in each sector would continue to be guided by FDI norms,the Home Ministry feels that entry of foreign entities inimical to India would not be desirable in “sensitive sectors” and “sensitive areas” like Jammu and Kashmir,the North-East and near nuclear,space and defence installations.

These sectors include seaports,shipping,airports,aviation,internet service providers,international long distance telecom,petroleum refining,pipelines,roads,waterways,drugs and pharmaceuticals and defence industries.

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