Kamal Nath wants nation-specific FDI curbs

NEW DELHI: In a move that could have a bearing on foreign direct investment (FDI) from countries like China and North Korea, commerce & industry minister Kamal Nath has made a strong case for country-specific security curbs on foreign investment.

If FDI from a country is not allowed in one sector, he has argued that it should not be allowed in other sectors too. At the same time, if FDI from one country is allowed in some sectors, there is no case for denying permission in others.

The ministry’s stand has major ramifications. It could mean allowing FDI from China in ports and telecom as China has been allowed to invest in other areas. It could also lead to the other extreme of banning all FDI from countries like China and North Korea as the government is worried about the security implications of allowing these countries to invest in sensitive areas.

In China’s case, security agencies are opposed to FDI in sensitive sectors like ports, telecom and IT. Many such proposals have been put on hold and the view of Mr Nath’s department of industrial policy & promotion (DIPP) would mean that Chinese FDI in sectors like toys or consumer goods may also be banned.

While strongly backing the National Security Council’s proposals for security check on FDI flows, Mr Nath has argued that Taiwan should be kept out of the negative list. The NSC had clubbed Taiwan along with Hong Kong and Macau which are now under Chinese control. “Taiwan should be separated from the list of countries from where investments are being perceived as threats to security interests. Over the years, Taiwan has emerged as a big investor in the Indian manufacturing sector,” says a DIPP note to NSC.


The commerce & industry ministry feels that sector-specific and location-specific restrictions should not be imposed on FDI. If investment from a country cannot flow in a sensitive sector like Jammu & Kashmir or Sikkim, then such FDI should not be allowed in other parts of the country as well. In the past, security agencies had opposed functioning of Chinese companies in border areas.

The ministry’s views are important as it is the nodal agency for FDI policy. Originally, the Foreign Investment Promotion Board (FIPB) was also part of DIPP. The ministry feels that country-specific restrictions should be imposed through FEMA regulations. In other words, the DIPP is open to the idea of adding more countries to the negative list maintained under FEMA.

The DIPP also favours an undertaking by foreign investors that they would not indulge in any activity that is harmful to India’s national interest. Such a clause should be made applicable not only to FDI but also to all contracts, tenders and agreements inked by the Centre, state governments and local bodies.

Recently, NHPC was directed by the government not to consider Chinese companies for execution of major projects in “sensitive” areas like Himachal Pradesh and Jammu & Kashmir.