With a view to curb security threats caused by inflow of FDI in various sectors, the National Security Council (NSC) has decided to promulgate an umbrella legislation known as National Security Exception Act (NSEA) aimed at imposing checks on the FDI flow into India.
The NSC has raised concerns that foreign investment from various notified countries are likely to pose security threats as there is a possibility of multinational corporations in such countries being used for catalyzing anti-national activities and breach of national security.
The NSEA would be based on the lines of the Exon-Florio Act of USA, 1988 that empowers the Committee of Foreign Investment in the US, to prohibit takeover of any American company likely to cause a threat to the country's security. Such legislations are very common to countries viz. England (Golden Share), Mexico (Foreign Investment Law), Canada, Australia, Thailand and China who have enacted similar laws to block anti-national activities through FDI.
The proposed legislation is expected to be implemented in a phased manner by NSC under the supervision of the Prime Minister's Office (PMO). At the outset, security guidelines would be formulated by virtue of which a security screening of FDI on the basis of sensitive locations, sectors and foreign firms known to have dealings with anti-national elements etc. would be conducted.
The areas that would come within the realm of FDI screening would include Jammu and Kashmir, the North Eastern States and other sensitive locations in close proximity to vital nuclear, space and defence installations and border areas. Further, the sectors where security concerns are being expressed include inter alia aviation, ports, shipping and telecom.
Subsequently, in all Government contracts, tenders, agreements, the National Security Exception Clause would initially be introduced and consequently NSEA would be brought into force, empowering the Government to suspend or prohibit any foreign acquisition, merger or takeover of an Indian company prejudicial to national interest in the abovementioned sensitive areas.
The implementation of NSEA is expected to provide an effective scrutiny of MNCs proposing to invest in the Indian market. Further, such legislation is expected to bring about transparency and adoption of a non-discriminatory mechanism in approving FDI proposals.
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