Home Ministry raises red flag on national security concerns

Amid ‘disagreement’ by the Home Ministry over raising the foreign direct investment (FDI) cap in telecom and raising the cap on entry route in Credit Information Companies, the Cabinet is likely to take up on Thursday the raising of sectoral caps and change in approval routes in defence, petroleum and natural gas, single brand retail, power and commodity exchanges and some other sectors.

Raising the “red flag” on investments of concern, the Home Ministry, in its comments to the Cabinet note, accessed by The Hindu on the issue of raising the caps and routes in various sector, states: “In the telecom sector, the Home Ministry has disagreed with the proposals in the Cabinet note to raise the cap from 74 to 100 per cent. It has also disagreed with the proposal to raising the cap and entry route in Credit Information Companies from 49 per cent FIPB route to 74 per cent automatic route. The Home Ministry is also of the opinion that Defence being a very sensitive sector should remain in the 49 per cent FDI category, which will enable Indian ownership and control.”

The Ministry further said the main security threats/concerns that were raised in the past were categorised as investment in sensitive areas and industries. FDI from countries and entities of a concern and the source of investment and control resting with foreign entities on account of mergers and acquisitions were an area of concern. The Ministry has categorised these threats under one umbrella — “investments of concern.”

Justifying need to liberalise FDI caps and routes, the Cabinet note states that in the backdrop of the fairly modest FDI inflow over the last year and lack of growth in gross domestic capital formation, need was felt to review the FDI ceilings and entry routes for some sectors in order to stimulate FDI inflows.

To protect the security interests of the nation, the Cabinet note proposes 26 per cent FDI in defence under the government route. However, in excess of 26 per cent, the proposal would be considered by the Cabinet Committee on Security on case-to-case basis, which are likely to result in access to modern and state-of-the-art technology.

Sensitive nature

“Given the strategic and sensitive nature of the defence sector, the Ministry of Defence is not in favour of FII through portfolio investment in this sector. For reasons of security and sensitivity, tea sector, including tea plantations, will continue to be on the government route.

In sectors such as commodity exchanges, stock exchanges, power exchanges, petroleum and natural gas, the Cabinet note states that Indian ownership and control is considered essential on account of national security considerations and other sensitivities. Therefore, the sectoral cap on FDI in these sectors has been restricted at 49 per cent under the automatic route.

For telecom, FDI up to 100 per cent with 49 per cent under the automatic route and beyond 49 per cent through the FIPB route has been proposed subject to observance of licensing and security conditions by licensee as well as investors as notified by the Department of Telecommunications from time to time.

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