FDI Law May be Revised to Block Investment in Sensitive Sectors

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Aug. 19 – The National Security Council has submitted a secret report suggesting revisions on the current FDI guidelines to allow the government to stop foreign mergers or takeovers of Indian companies that are considered damaging to national interest, reports The Economic Times.

Under the proposed National Security Exception Act foreign investment in sensitive sectors and locations in the country originating from ‘‘countries and origins of concern’’ are subject to special security screening at the time of approval and period of operation.

This will apply to funds coming through both automatic and FIPB routes, as well as the fast track council projects. The new proposal follows fears in India that terror funds may be finding its way into the country and comes fraught with security risks. Specifically, dubious investments coming from tax havens like Mauritius, Cyprus and Cayman Islands as well as foreign criminal organizations.

The NSC proposal will be applicable to current and future FDI, M&As, and allotment of preferential shares to a foreign entity. It will also include government contracts, tenders and agreements in seaports, airports, telecom, internet services, petroleum refining, gas pipelines, hydrocarbon exploration, shipping, roads, waterways, drugs and pharma, networking hardware, data processing, defence and metallurgy.

In the case of FII holdings, NSC has pressed for full disclosure of the sub-accounts and participatory notes holders, according to The Economic Times .

The NSC report also comes with the suggestion of having Indian citizens manage top executive positions in companies and that foreign executives must first obtain security clearance.

Moreover, the report mentions that the FEMA Notification 20/2000 that blocks FDI coming from Bangladesh and Pakistan will not suffice since FDI from countries like China, Hong Kong, Macau, Taiwan, Afghanistan and North Korea are also considered a threat.