Security screen for M&As, core sector funding

The National Security Council (NSC) secretariat has proposed security screening should not be limited to just foreign direct investment proposals but also cover mergers and acquisitions involving foreign participation.

It has also suggested that all contracts, tenders and agreements entered into by state governments, central departments and public sector undertakings should have a national security exception clause.

This provision, the NSC has said, should also be made applicable to all public private partnerships, which means all infrastructure projects that the government hopes to enter into. Just last week, Prime Minister Manmohan Singh had announced that infrastructure projects would require over $325 billion in funding by 2012.

The NSC, in a concept paper, has said security screening for M&As should be carried out by the Reserve Bank of India and the Securities and Exchange Board of India.

Government officials said the NSC has also suggested that an umbrella legislation titled the National Security Exception Act should contain provisions to empower the government to suspend or prohibit any foreign acquisition, merger or takeover of any Indian company considered prejudicial to the national interest.

A senior minister told Business Standard "there is a problem (with regard to security concerns over investments from countries like China in sectors like telecommunications and ports)," but declined to comment further.

The paper has also mooted that in all cases of FDI permitted through the automatic route, the RBI should have a threshold and intimate the nodal body for security scrutiny, the finance ministry, when the proposed FDI exceeds it.

The paper also suggests that existing foreign entities operating in India should be required to take approval before starting any new activity in sensitive sectors or locations or receipt of foreign participation from countries of concern.

It has also suggested that foreign participation in sensitive sectors and locations and from countries of concern should be subjected to special security screening both at the time of approval and during the entire period of operation.