New Delhi: The government is considering strict laws for scrutinising foreign direct investments to thwart security risks, officials said on Tuesday, a move experts say could further slow FDI inflows into the country.
The National Security Council (NSC) headed by Prime Minister Manmohan Singh wants to arm the government with powers to cancel or suspend FDIs over fears of terror funds entering India and stop any acquisition or mergers that could be against New Delhi`s strategic interest.
"The proposal is still under consideration," said Ajay Shankar, Secretary, Industrial Policy and Promotion. "It is still being discussed and no final decision has yet been taken."
Police intelligence bureau officials have also suggested top company posts be headed by Indians and not foreigners, especially in the telecoms sector, to reduce the threat of phone calls being intercepted or monitored, officials said.
The NSC in its report wants to scrutinise FDI particularly from countries such as China, Hong Kong, Afghanistan, North Korea, Mauritius and the Cayman Islands before being approved.
Although China is still India`s biggest trading partner, India has restricted imports of Chinese toys and cheap mobile phones from its neighbour.
The NSC report is being circulated among the various ministries for feedback and one official said a final decision would be taken later this year.
"We are very open to foreign investment now. We don`t see any contradiction," Ajay Shankar, the senior commerce ministry official told media.
A global economic crisis has already slowed down FDI inflows.
FDI inflows stood at USD 8.5 billion in the January-April period, down 45 percent against the same period last year, ministry officials said.
Some experts say stricter laws could further slow down FDI inflows into India, but the decision could have been made keeping New Delhi`s strategic and security interests in mind.
"Most countries are sensitive about their strategic sectors. It is a familiar pattern India is following," Uday Bhaskar, an expert in strategic affairs said.
"On the one hand, countries agree to globalisation. But when it comes to strategic sectors such as energy and defence, there are reservations," Bhaskar, director of National Maritime Foundation, a New Delhi think-tank added.