The Cabinet Committee on Security (CCS) headed by Prime Minister Manmohan Singh may shortly consider the proposal to impose security-related restrictions and screening of foreign direct investment (FDI) proposals by investors and foreign corporate bodies, apart from foreign institutional investors (FIIs).
Government sources told Hindustan Times that the National Security Council (NSC) recommendations would form the basis for imposing strict norms to screen all FDIs, especially those from Pakistan, Bangladesh, China, HongKong and Macau, besides Afghanistan, Taiwan and North Korea.
Investments routed through other countries from them through tax havens like Mauritius and Cayman Islands would also be subjected to scrutiny following security concerns raised by both – internal and external – investigative agencies in the country.
“The NSG recommendations will have to come up for discussion before CCS before a final decision is taken,” said a finance ministry official on condition of anonymity.
Finance Minister Palaniappan Chidambaram, Home Minister Shivraj Patil and Defence Minister Pranab Mukherjee are the other members of the CCS. Once a full-time external affairs minister is appointed, he would also join the group.
Alternatively, the recommendations may be referred to a group of ministers (GoM) that is likely to be set up by prime minister for a “second opinion”. Constituting a ministerial group may be warranted as a large number of economic ministries are involved in the decision-making process, said a source.
Portfolio investment into stock markets through the participatory notes (PNs) and sub-accounts of FIIs may also come up for security clearance. This, by implication, would force the FIIs and their Indian associates to disclose their sources of funds apart from providing full financial details of the investors making investments in Indian bourses.
Already, the Tarapore committee on full capital-account convertibility has recommended that participatory notes be phased out over the next two years.
The NSG had recommended that the security blanket be extended to new sectors like information technology – hardware and software, data processing and hydrocarbons. Currently, the scrutiny of foreign investments is mainly focused on sectors like aviation, telecom and Internet services.
The NSG note, according to the sources, has already been circulated amongst key ministries involved in the economic decision making process apart from the security establishment at the highest level.