In a major decision, all proposals for foreign investments and foreign participation in India will now need a security clearance from home ministry. The United Progressive Alliance government has said that all foreign investments that endanger national security will be put on hold till a clearance is granted.
The commerce ministry had earlier been opposing the move fearing an adverse effect on the robust inflow of investment into India. Highly placed sources said that the ministry finally gave in after getting intelligence reports indicating how investments were being made in sensitive areas that could compromise national security.
However, if difference of opinion on the issue between the home and commerce ministries persists, the final decision will be taken by the Committee of Secretaries.
All foreign direct investment proposals are currently vetted individually from the security angle even now, but this is done in an ad hoc manner with no transparent guidelines laid down for uniformity in arriving at right decisions.
An umbrella legislation -- National Security Exception Act -- is now being planned to empower the government to suspend or reject any foreign participation that endangers national security.
Pending such a law, a 'national security exception' clause would be inserted in the rules and regulations pertaining to foreign investments and the Reserve bank of India's approval procedures. This law will also extend to all domestic and international tenders issued by the central government, the state governments and the public sector undertakings.
The security clause provides that 'due regard will be paid to national defence and security considerations while evaluating tenders and giving approvals for various projects.'
Currently, major foreign investments are now coming in through the automatic approval route and the RBI has been directed to modify the reporting format prescribed by it for foreign participation to include the security clause.
The National Security Council, which met in New Delhi recently, is said to have discussed the contours of the proposed law that will ultimately ensure the government's watchful eye on all foreign investment and whether it is a threat to national security.
Sources said that the proposed legislation will enable the government 'to exercise powers to examine and if necessary, to suspend or prohibit any foreign participation proposal if it is determined that it would be against national security.'
The legislation will have a statement of objectives and reasons underlining the inherent powers of the government to take suitable measures to safeguard national security concerns arising out of foreign participation. It will also define foreign participation, foreign direct investment, sensitive areas, industries, mergers and acquisitions.
The clauses to be incorporated in the law would deal with issues like national security concerns, determination of acts infringing national security, institutional mechanism to deal with such acts, measures, including punitive actions, powers of regulators in different sectors and provision for appeals.
The Cabinet Committee on Security, chaired by the prime minister, has also cleared a note of the external affairs ministry -- 'Guidelines for foreign participation in projects in sensitive areas and industries' -- for implementation by the ministries.
