Security forces new norms for FDI

NEW DELHI: The government is planning to address security concerns over FDI by bringing in a stipulation that will enable action against foreign companies if they are found involved in activities that go against national security.

The department of industrial policy & promotion (DIPP), the nodal agency for FDI, has suggested that a clause to the effect can be included while providing clearance for foreign investment. Foreign companies could also be asked to submit a declaration that they will not undertake any activity that undermines the country’s national security.

According to the strategy suggested by DIPP, action would be initiated if a company bringing in FDI is found to be involved in funding espionage or money laundering. The government should also act if funds are sourced from ‘unfriendly’ countries are being used for anti-national activities.

The proposals are in response to suggestions of the National Security Council (NSC) that has called for measures to check threat to the country’s security from FDI. The proposals of the council were circulated to various ministries by the Prime Minister’s Office (PMO), and DIPP has responded with a set of initiatives that could take care of security requirements without discouraging FDI.

“A clause may invariably be added to the permission for FDI, inter alia, reiterating that action as deemed appropriate can be initiated by the government to check investments, which are of nature inimical to security interests,” the DIPP has informed NSC. It is understood that a mechanism to implement the stipulation would be worked out in consultation with other arms of the government.

“Applicants/investors may be directed to submit an appropriate declaration to the effect that they will not undertake an activity that adversely affects the country’s national security,” says the communication to NSC. The DIPP is of the view that the safeguard measure is better than imposing sectoral restrictions on FDI. The council had suggested that FDI in sensitive sectors could be barred or capped.

The DIPP, on the other hand, feels that restrictions should be country-specific and not sector-specific. Fema already bans FDI from Pakistan and Bangladesh. The communication to NSC says the list of banned countries could be expanded to cover more nations that have been identified as potential sources of risk. This is seen as a better option than barring FDI from one country in one sector or region while allowing it in other cases.