Are foreign investors tripping on India?

NEW DELHI: Vodafone may have won the battle after Finance Minister P. Chidambaram put his stamp on the company's $11 billion bid for Hutchison Essar. But, the war is far from over.

The precedent set by the government in giving credibility to a Foreign Direct Investment (FDI) model where Indian citizens can stand proxy to foreign source of capital may open a Pandora box when it comes to handling future investment proposals in areas with sectoral caps.


Even though the Vodafone-Hutchison-Essar deal has got the Foreign Investment Promotion Board (FIPB) nod, Rajya Sabha Member and the former chief of BPL Telecom, Rajeev Chandrasekhar intends to take the matter of principle to its logical conclusion. The telecom veteran has shot off a missive to Prime Minister Manmohan Singh seeking his intervention in streamlining the somewhat fluid approach to foreign investment, leaving loopholes that can be easily violated by many investors in future too.



"Is it the case of the government that where there is sectoral cap, any Indian citizen (or entity) standing proxy for foreign source of capital is enough to satisfy our requirement of being an Indian investor," says the letter questioning this model that is rampantly finding favour in the country.



The only operative law here seems to be Foreign Exchange Management Act (FEMA). And, if that's the case, it clearly requires either stronger enforcement or amendment to give the policies of sectoral caps more teeth, it goes on to say.



The letter, a copy of which has been marked to the Finance Minister and Parliamentary Standing Committee on Finance Chairman Ananth Kumar, reiterates the concerns aired by the National Security Advisor earlier on the need to scrutinize investors more closely, given the overall security challenges faced by the country. "Are there Indian financial institutions and foreign institutions licensed to operate in India that are aiding and abetting these complex multi-layered financial transactions with the sole intention of circumventing the spirit of sectoral caps?" the letter says.



"The question is not attempting to target any one company, but rather I am raising this issue as an issue of principle to start a debate about our country's approach towards foreign investment, the loopholes in our approach and the disrespect of the laws of our country by a few foreign investors. I have posed similar questions recently pertaining to foreign investment in Land on coastal areas," he said regarding his recent question to Communications and IT minister Dayanidhi Maran in the Parliament.



He added that encouraging investments that do not respect the letter and spirit of our land have gradual corrosive impact on our system and polity and will come back to haunt us later.