The Centre is likely to enact an umbrella legislation cutting across all sectors to protect India's vital national security interests. The legislation — the National Security Exception Act — will empower the government to suspend or prohibit any foreign participation proposal that may threaten national security.
The proposed legislation is likely to be based on a highly classified report prepared by the National Security Council Secretariat (NSCS) on 'Potential threats to India's National Security from Foreign Direct Investment (FDI)'.
Tasked by the Cabinet Committee on Security (CCS), the 25-page report, which has just been circulated from the Prime Minister's Office to the ministries concerned, has suggested that the proposed legislation must not only cover future foreign participation in the Indian economy but subject past agreements to security monitoring and scrutiny. "Such legislations are in existence in the US, UK, Thailand, Mexico and several other countries," it asserts.
The broad suggestions made by the NSCS include keeping tabs on foreign participation in sensitive sectors and locations and from countries of concern both at the time of approval as well as during the entire period of their operations. Plus, it also mandates regulators to seek the opinion of intelligence and security agencies, with the RBI following a threshold criterion once the proposed FDI moves above a particular amount.
"In case of mergers and acquisitions involving foreign participation from the countries of concern, screening should be done by the RBI/SEBI, "the report suggests while naming the countries of concern as China - including Hong Kong, Macau and Taiwan - Pakistan, Bangladesh, Afghanistan, DPR Korea, LTTE-backed companies, whether based in Sri Lanka or elsewhere.
Divided into five sections -- Present Mechanism, Shortcomings in the System, Issues of Concern, Guiding Principles of Determination of Threat and Suggestions - the NSCS has identified several existing foreign companies working in India with questionable credentials.
For instance, Egypt's Orascom Telecom Holdings (with a potential to be on the board of Hutchison Essar Ltd.) is believed to have received investments from the late Yasser Arafat's organisation. It happens to be the biggest player in the telecom field in Pakistan and has a significant presence in Bangladesh.
A Chinese company, Huawei, established by a former People's Liberation Army officer and a member of the Chinese Communist Party, has R&D operations in Bangalore and plans to expand its operations.
The NSCS document has identified Jammu and Kashmir, northeastern states, Chhattisgarh, areas in the proximity of vital nuclear, space and defence installations as sensitive locations.