The CPM'sover-enthusiastic lobbying for a Chinese consortium has suddenly awakened the country to the threat to national security from foreign direct investment. Ever since the country adopted globalisation and economic liberalisation in the early 90s the entire concentration of the establishment was on attracting more and more FDI with the plea that Indian condition was not exactly conducive to claim the status of a major foreign investment destination. In this India was often compared with China, whose record in attracting foreign investment has been excellent as compared to India. As a consequence India adopted an aggressive FDI-wooing regime through automatic clearances and the entire economy was opened up to foreign investment often overlooking not only national interest, but even crucial security concerns.
In that light, a discussion paper seeking stricter norms in FDI clearance in specific areas prepared by the National Security Council (NSC), which is being currently debated by a group of secretaries, was extensively reported by The Economic Times. It is easy?and there will be many reform votaries?to dismiss such caution as bureaucratic roadblocks. But a closer look would convince us that these fears are not to be overlooked and they raise real issues of vital national interest.
Politics play a major role in analysing these issues. However there are areas where a national consensus is possible. For instance, the NSC paper has given specific cases where Indian security is compromised in the process of allowing FDI. Citing potential threats to national security from FDI the NSC has said, such foreign entities could deny the country supply of their products or R&D on the pretext of laws of their respective countries. This threat is implicit in Special Economic Zone (SEZ) which will enjoy benefits provided by the Indian system. An export-oriented unit (EOU), MOOG based in Bangalore, for example, refused to supply actuators and valves for IAF'sLight Combat Aircraft (LCA) project. In another case, Indian company Nocil'stakeover by DuPont has created problem for Defence Research and Development Organisation (DRDO) and Department of Space, which were denied critical chemicals for missile-related programmes. As a result of the DuPont takeover these defence establishments perceived a threat from extra-territorial application of US laws connected with dual use materials. The NSC says, in all agreements for FDI entered by the state governments, centre and PSUs a national security exception clause should be introduced. Such legislation has been adopted in the US, UK and Canada. This would empower the government to suspend or prohibit any foreign acquisition, merger or takeovers in national interest.
The NSC paper has identified the flow of investments from tax havens like Mauritius, Cyprus, Cayman Islands and from criminal groups operating from other countries as danger zones. The Russian mafia has invested heavily in real estate projects in Goa. The FDI into real estates come under the automatic approval route. The source of money could be illegal, and if the FDI is controlled by anti-Indian elements it could be manipulated through sudden withdrawal or pumping in of capital to cause serious economic crises. They could even be tools of economic espionage. A Pakistani company can set up business in Dubai and Dubai company can invest in India through a tax haven. The NSC paper notes, FDI from countries like China, Taiwan, Hong Kong, Macau, Pakistan, Bangladesh, Afghanistan and DPBK could threaten India'ssecurity interests. We have said it earlier, we will say it again, the greed for FDI should not make us blind to national interest. The NSC paper has to be taken with all seriousness and a political consensus has to be evolved to enact a law to bring in an enabling clause to insulate FDI clearances from breach of national security.