Setting off another hare

Intelligence agencies sometimes use kosher firms that they own, even if at arm's length, for covert operations. So security agencies have been saying for some time now that they are worried about the origins and destination of some foreign investments. Recently, they have complained about investments in the communications, port, and Internet businesses. The National Security Advisor, MK Narayanan, has pointed out that the Egyptian mobile company Orascom has an indirect stake in Hutchison Essar and is also operating in Pakistan; and Chinese firms have been blocked from bidding for telecom contracts and port management. For good measure, questions have been asked in India and overseas about Jet Airways' funding. Mr Narayanan is reported to have asked for an overall security policy for these "sensitive" sectors. The withdrawal of an application from the Foreign Investment Promotion Board, by the Chinese company ZTE Telecom, in order to use the automatic route also led to what the Americans call a "heads up". As a result, it is now reported that the format of the 'Foreign Collaboration""General Permission Receipts' form may also be changed. The form, based more on hope than experience, is a self-declaratory one for investments through the automatic route.

But at present there is no law on the subject because ministries have to rely on their good sense and on inputs they receive from the security agencies. To address the problem, the government is preparing a new law on foreign direct investment. The first draft is ready, authored by the National Security Council Secretariat. According to Kamal Nath, the minister for commerce and industry, the National Security Exception Bill, as it is styled, is not such a bizarre idea because "in the US and EU, the government steps in when FDI comes in from undesirable origins and targets sensitive sectors. Why should there be problems if a similar thing happens in India?" But governments often intend well, only to botch things up when they start to implement the law. Indian governments are more prone to this because a bit of villainy also creeps in from time to time in the guise of what is called the case-by-case approach, and competitor lobbying will now have a new handle to use (as is already evident in some cases). So it is just as well that Ficci has asked the government to be judicious and transparent in implementing the new law. Only time will tell if its plea is heeded, because while being judicious in such things is one thing, being transparent may not be easy.

India is not the only country, as Kamal Nath said, to be faced with a security dilemma when it comes to FDI. The US has also been grappling with the problem, most famously in Dubai Ports' acquisition of P&O, not to mention CNOOC, which wanted to acquire Unocal. There was a great deal of fuss over both, but importantly, the US government and Congress were at loggerheads over Dubai Ports. The government cleared the company under the existing law, dating from 1988, known as the Exon-Florio Amendment, which blocks foreign acquisitions of US firms that threaten national security. But such has been the paranoia in the US that a review was demanded and now a new set of laws is being asked for. This has led to the core question in all such issues: if the intelligence agencies can come up with the relevant information, which they are paid to do, aren't existing laws enough to deal with security issues""especially if automatic approvals are in any case being knocked out in these sectors? Why enact a new law whose implementation may cause more problems than it solves?