Security-conscious FIPB nixes Chinese FDI plan

NEW DELHI: The security paranoia over foreign direct investment (FDI) from China has scalped one more victim. Close on the heels of detailed suggestions from National Security Council (NSC) on the need to scrutinise FDI more carefully from the national security perspective, the Foreign Investment Promotion Board (FIPB) has nixed an attempt by two Chinese nationals to set up a firm in India to provide engineering and consultancy services to power sector firms.

The rejection was based on the 'adverse comments' from the ministries of home and external affairs ministries.

The two Chinese nationals, Wang Lujun and Zhang Hongson, were keen to set up a subsidiary here for undertaking engineering, procurement and erection (EPC) contracts for power plants and infrastructure projects. Their company, Sepco Power Projects India, would also provide consultancy services, drawings, supply equipment and after-sales support, they had informed the FIPB.

While the investment proposed was just around Rs 1.5 crore, the rejection is significant since it would set the tone for blocking all Chinese investment in this segment.

While the external affairs ministry conveyed its reservations to the proposal, the home ministry was categorical that the FIPB should reject it. The board had initially deferred the proposal but scrapped it after recent deliberations. The move is significant since it comes close on the heels of the NSC’s suggestions on tight screening for FDI from various sources including China, Hong Kong, Macau, Pakistan and Taiwan.

In the case of power projects coming up in Himachal Pradesh, the government was of the view that Chinese companies could not be made equipment suppliers since these units are to be located in sensitive border areas.

The two Chinese nationals had approached the FIPB since they also wanted to take up wholesale trading and test marketing. All the other areas of business shortlisted by them were on the automatic route for FDI.

During FIPB deliberations, the external affairs ministry suggested that the proposal should be referred to security agencies. While the finance ministry was in the process of doing so, the external ministry conveyed to the board that several reservations had cropped up after consultations with 'field' sources.

In the meanwhile, the home ministry 'categorically' said that FIPB should reject the proposal. The views of the home ministry and the reservations of the external affairs ministry meant curtains for the project.

The move is significant since the NSC has also sought thorough scrutiny of foreign investment by FIIs. FDI routed through tax havens like Cyprus, Cayman Islands and Mauritius should also be scrutinised, the council has said in a detailed note which has been circulated to all economic ministries by the Prime Minister's Office (PMO).