FM against bar on wholesale trading

Finance Minister P Chidambaram feels no restriction should be imposed on wholesale trading of an item, even if it is sensitive and undertaken by a multinational's wholly-owned subsidiary, provided the item can be imported freely under the open general licence.

Consequently, the Foreign Investment Promotion Board has allowed Verint Systems of the US to set up a fully-owned subsidiary in India after deferring a proposal to this effect four times and rejecting it once in the last five months owing to reservations of the department of telecommunications, ministries of defence and home, and the intelligence bureau.

Verint, which has recorded sales of $72 million in the first quarter of 2005, is a provider of analytic software-based solutions for the security and business intelligence markets. Its proposed subsidiary in India, in which Rs 5 lakh will be invested, intends to stock, sell and service surveillance equipment and systems on a cash-and-carry wholesale basis in India as well as outside.

DoT had, since the proposal was taken up in January this year, insisted on clearances from the ministries of defence and home. Neither supported the proposal.

Therefore, at DoT's instance, the FIPB rejected it in March. But the proposal came back when the finance minister said such objections had no meaning when the item was on OGL.

The defence ministry conveyed that it had no objection. However, it said the sale of the equipment and systems used for surveillance or intelligence-gathering should be controlled and limited to government organisations or for legitimate use by business houses authorised by the government or a regulator.

Subsequently, the DoT said the proposal could be approved subject to conditions specified by the defence ministry. The sale of surveillance and monitoring equipment should be limited to government agencies or legitimate users authorised by the government or a regulator.

Secondly, Verint must provide the details of the buyers of its equipment to the defence and home ministries. Any violation must result in cancellation of the company's licence. Caution was needed, since the items were on OGL and the government would have no control over the company.

The home ministry opposed the proposal on the ground that surveillance and monitoring equipment had a vast potential for misuse by anti-national elements and the company had not been cooperating with government agencies on security issues. Besides, the Intelligence Bureau had objected to the proposal.

The FIPB chairman, however, observed that it would be better if the proposal was approved subject to the conditions stipulated by the defence ministry.

The home ministry could also put some conditions to safeguard its interests. That would provide the government more control over the company.

Finally, after discussions with the defence and home ministries and the IB, the DoT gave its clearance to Verint's proposal with the condition that the company must obtain permission from the DoT, the defence ministry and the home ministry before sale, stock, demonstration and maintenance of surveillance and monitoring equipment.