ZTE seeks automatic route after FIPB snub

Even as the government is mulling a legislation to empower it to reject any foreign direct investment by a company for security reasons, Chinese company ZTE Telecom, whose proposal to enter wholesale trading was rejected by the Foreign Investment Promotion Board (FIPB), has now withdrawn its application and filed directly to the Reserve Bank of India as the activity is permissible under the automatic route.

ZTE already has a subsidiary in India and the company had sought permission to enhance its equity capital and enter after-sales services and wholesale trading in telecom equipment.

Government officials pointed out that the Chinese firm was well within the present FDI norms to apply directly to the RBI as wholesale trade was allowed under the automatic route.

Following the rejection of its proposal, ZTE Telecom had written to the board seeking an explanation. The company had pointed out that it had approached the FIPB despite the activity being allowed under the automatic route because it wanted to keep the board informed.

The company's proposal was deferred at the FIPB meeting held in May this year and was rejected at the FIPB meeting held on June 13.

Meanwhile, opposition is building up against the proposal of the home ministry and the national security agency to introduce a new law to reject FDI proposals on security considerations.

Sections in the government believe the law would be at a variance with the government's present policy to attract FDI. "There is also a concern that the law could be misused to stall any proposal merely on security grounds," an official said.

Officials pointed out that while countries like the US had a similar law, the law was seldom invoked to stall an investment proposal. Investment proposals of many Chinese firms in India have been blocked for security reasons.

A classic example is that of Huawei Technologies, which had put up an application for foreign investment in India for a manufacturing unit about two years back, but has not yet got the government's nod.