FDI may face Govt security roadblock

NEW DELHI: The government is planning to bring in legislation that would empower it to stop foreign investments on security grounds. This is on the lines of a US law. This was decided in a meeting held on July 26, presided by the chairman of the joint intelligence committee.

The meeting was attended by officials from the Intelligence Bureau, department of economic affairs, department of industrial promotion and policy, department of shipping, ministry of external affairs, and department of telecommunications.

As of now, there is no legislation in India that bars foreign investment for security reasons. In future, all tenders floated by PSU companies will have enabling clauses by which the government could intervene and disqualify a company for security reasons. Moreover, the decision to incorporate a clause in all the tenders allowing the government to disqualify a company on security reasons will enable PSUs to ban procurement from such companies. All government licences will have a clause that will enable it to cancel licences in case of security reasons.

In some sectors like telecom, the private sector has a bigger presence than the government sector. Private telecom operators account for more than 50% of the total subscribers in the country. It is not yet clear how the government will bar private telecom operators who import directly from equipment manufacturers that are disqualified from investing in India.

In the telecom sector, the government hasn’t cleared Chinese major Huawei’s proposal to the FIPB for setting up a manufacturing unit in India. However, telecom operators are allowed to import equipment directly from the company. Both the government and private telecom operators buy equipment from Huawei.

The government-owned MTNL and BSNL have introduced a clause in tenders for procurement of equipment that makes it mandatory for all

bidders to set up manufacturing base in India. However, in the absence of FIPB approval, Huawei has to tie up with other companies. For instance, in an MTNL tender for procurement of GSM systems, Huawei has partnered Motorola.