This proposal is part of a discussion paper prepared by a committee of secretaries on the National Security Exception Bill, which is yet to be tabled in Parliament. The Bill is intended to provide a mechanism to review and restrict FDI that might threaten national security.
Under the proposal, 18 sensitive sectors (See list below) of the economy have been listed that will automatically activate a "trigger" or alarm mechanism for an FDI proposal to attract greater scrutiny. This triggers list is to be revised annually.
"We felt that putting countries on a negative list was bad diplomacy. So we settled for sectors of the economy instead," a top official who has been part of the discussions told Business Standard.
FDI applications that attract this trigger will be scrutinised by the home ministry rather than the finance ministry.
This list of sectoral triggers is to be a part of a larger matrix that will be prepared once the government receives an FDI proposal. Another trigger will be set off if a foreign company wants to invest in certain states - like J&K, the North East, Sikkim - areas affected by insurgency and in proximity to defence or nuclear establishments.
Investors that feature on any of these lists will be asked to furnish more details of their operations and those of their subsidiaries elsewhere. All investors could be asked to notify a separate commission on mergers and acquisitions (to be set up) and the ministries concerned on their plans for India.
The paper also suggests that all contracts, tenders and agreements signed by state or central government and their undertakings, including local bodies like municipal corporations, have a National Security Exception Clause.
In all cases, the CoS paper suggests that the entity bringing in FDI or receiving FDI should make a declaration to the appropriate sectoral regulator that it would "not indulge in any activity that adversely impacts on national interest". Violation could invite severe penalties that were, however, not spelt out.
The paper also suggests that the government must say yes or no to investors within 30 days of getting a proposal, and seek more information if necessary.
The subject of perceived threats via FDI has been doing the rounds for over two years. A case in point is the acquisition of a 19.2 per cent stake in Hutchison Telecom International Ltd by Egyptian mobile operator Orascom in December 2005.
Orascom operates Mobilink, a leading mobile network in Pakistan, and this connection worried Hutch's Indian partner Essar and key government security officials, as Orascom said that the acquisition would give it a footprint in this booming mobile market and board representation in Hutch Essar.
On February 28 this year, Orascom group chairman Naguib Sawiris resigned from the HTIL board.
THE TRIGGER LIST
(Sensitive sectors for FDI)
Seaports
Airports
Aviation
Telecommunications
Internet service providers
International long distance telecom services
Petroleum refining
Gas pipelines
Hydrocarbon exploration
Shipping
Roads
Waterways
Drugs and pharmaceuticals
Data networks
Electronic hardware
Data processing
Defence industry
Metallurgy