Tuesday, October 31, 2006

FDI: Is bias against nations justified?

The context in which this question is being asked is the discrimination being followed by India against Pakistan and Bangladesh in so far as investments from these countries are concerned. Instances of investment proposals from China also being discouraged are noticed. This is on account of security threats.

One argument is that in so far as security threats are concerned, there is hardly any difference between desi and foreign companies. The concerns apply to both the types of companies. In today’s increasingly globalized world, both capital and services move seamlessly across the borders. It becomes very difficult to identify the origin or source foreign investment because third countries could be used as conduits. So in such a scenario, a better approach would be to specify stringent criteria for investments in sensitive sectors. Ideas like having a foreign investment law incorporating the security concerns of the country could be enacted.

Another view is that discrimination of countries based on security concerns smacks of fossilized approach to security in a globalized world. Today’s threat may become tomorrow’s darling and vice versa. Ownership of companies also is very complex; today a company may be registered in US and owned by a French company. But tomorrow the same may be acquired by an Egyptian company. So which country is to be labeled as a threat? With regard to the stand taken against China, what perplexes logical thinking is that when China is using its FDI muscle in US as a leveraging point, why can’t India do the same with China?

A smart approach to security should be unobtrusive and yet Orwellian. Ultimately, security of a country depends on the integrity of its citizens and this is the biggest security threat that any country faces. FDI is only a red herring.