INDIA BUSINESS WORLD - OCTOBER 2006
THE MONTH THAT WAS...

FDI FINE, BUT LOOK WHO'S FUNDING

   THE NATIONAL Security Council has sought stricter norms in order to address security concerns related to FDI investments. A discussion paper — potential threats to India's national security from FDI — which is being currently discussed by a group of secretaries has said that investments from entities owned by or linked to inimical elements could be prejudicial to Indian interests. The council said the flow of investments both from tax havens like Mauritius, Cyprus and the Cayman Islands and from criminal groups operating from other countries pose a security threat to our economy on three main counts. One, the source of money could be illegal as this could be part of a money laundering process. Second, if the investment is controlled by anti-Indian elements, it could be manipulated through sudden withdrawal or pumping in of capital to cause serious economic crises. And lastly, these investors could indulge in or be tools of economic espionage in our country.

   In a startling revelation, the NSC paper said that the Russian mafia has invested heavily in real estate projects in Goa. The FDI into real estate come under the automatic approval route.

   The NSC said that since it was difficult to identify the real ownership in investments from tax havens, there was a need for closer scrutiny. “It is possible to camouflage the identity of an inimical investor by routing investments through a tax haven. A Pakistani company can set up business in Dubai and the Dubai company can invest in India through a tax haven. It also said foreign investment from countries like China, Hong Kong, Macau, Taiwan, Pakistan, Bangladesh, Afghanistan and DPRK could threaten our security interests as the entities from these countries could be manipulated.

   The NSC has said that J&K, Chattisgarh, Sikkim, NE states, areas in the proximity of vital nuclear, space and defence installations and areas within 50 km of the border with China, Pakistan and Bangladesh should be treated as sensitive locations.