Tuesday, July 15, 2008

FOREIGN DIRECT INVESTMENT – SECURITY CONCERN – POLICY PERSPECTIVE

It has been reported in the media that the government is likely to opt for certain sector specific restrictions on foreign direct investment (FDI) to protect national security rather than imposing countries specific curbs, as recommended by a High Level Committee set up by the PMO. In terms of current FDI guidelines there are restrictions on Pakistan and Bangla Desh nationals to invest in India and there are certain specific restrictions on nationals from Sri Lanka, China, Afganistan, Iran, Nepal and Bhutan. It may be appropriate for the government to prune down the aforesaid list of countries to a smaller number but to completely expunge the prohibition based on nationality could be a serious security threat. It may also be important for the government to examine that declaration is filed by the investing company, duly verified by a chartered accountant that the effective control and management and / or the beneficial ownership of such investors do not relate to certain specific alien nations. Also the KYC norms can be further strengthened in certain specific sectors like telecom, financial
services, accounting, legal, consultancy, NGO’s (trust, society and section 25 companies) and similar other vulnerable areas. The entities taking up foreign direct investments or foreign collaborations may be directed to give a declaration to the government that the ownership, management and control of the foreign investor and / or collaborator do not include specific alien nations nor they are involved in money laundering activities including terrorism, arm supply, narcotics (drugs) or similar other prohibited activities. The Indian chartered accountants, who may be requested to verify the aforesaid declaration may be empowered to receive necessary declaration and details from their counterparts in the respective countries to ensure that money laundering, anti-national activities or terrorism is not supported by foreign direct investment.

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