The plan to enact a new law to empower government to restrict foreign direct investment (FDI) on grounds of national security comes at a time when the debate on the country’s safety is revolving increasingly around little-known extremist, disaffected youth and hostile intelligence agencies. Such a legislative solution to address FDI-related issues may worry some, who may think that this is a throwback to the licence-permit raj or a specious attempt to block foreign capital. Hopefully, there is plenty of reason to believe that India has achieved the credibility to assert its sovereignty while embracing globalisation. India has sufficient technical and moral grounds in evidence to show that it’s not the only place where investment policies are, at times, viewed through the prism of national security.
Apart from visa-related concerns after the 9/11 attacks, the US has seen an acrimonious debate this year on the takeover of Peninsular & Oriental, which runs six ports in the US, by Arab-owned Dubai Ports World, and last year, on the aborted bid by the China National Offshore Oil Corporation to acquire petroleum giant Unocal. In that sense, the proposed law, tentatively named the National Security Exception Act, should not be viewed in a negative light. But caveats are needed to ensure that the red carpet to foreign investors is not tainted with the yellow of a jaundiced eye. India stands on strong ground in invoking security concerns. But pragmatically speaking, and from the point of view of sending the right signals to the world’s investors, it is pertinent to ask if engineers, expatriate managers and large companies that want to invest in India really constitute a potential threat. Sabotage can take place as much in a passenger plane as in a foreign company. Laying a minefield of bureaucratic or legislative controls may be unworkable in protecting Indian business.
The State must lay down transparent rules of engagement for foreign business entities in keeping with national security concerns, set up a mechanism which is non-intrusive and quick in addressing such concerns and protect investor sentiment. Already, concerns have been raised over the appointment of foreigners to key posts in the telecommunications sector, and in the buying of a telecoms company stake by an Egyptian firm. Steering clear of both xenophobia and paranoia is vital for the government as it ponders over the details of the planned law.