Wednesday, October 25, 2006

The security angle to the FDI

Of late the NSC (National Security Council) is issuing warnings on investments from tax havens and from certain other (read countries) sources of investment.

The NSC has said that J&K, Chattisgarh, Sikkim, NE states, areas in the promixity of vital nuclear, space and defence installations and area within 50 km of the border with China, Pakistan and Bangladesh should be treated as sensitive locations.

It has pointed out loopholes in the system of screening antecedents of foreign players and discerning their activities. It wondered why the FEMA notification 20/2000 put a ban on FDI from only Pakistan and Bangladesh and left out other countries.

The NSC wants safeguards against adverse consequences of foreign laws to units of foreign companies located in India. The Council said in all agreements entered by state governments, central government and PSUs, a national security exception clause should be introduced. An umbrella legislation titled National Security Exception Act could be adopted like in the US, UK and Canada, it feels. This could also empower the government to suspend or prohibit any foreign acquisition, merger or take over.