Decoding Modi govt

Itu Chaudhuri Design/Catch News

Decoding Modi govt's National Security Clause for foreign companies

The clause

  • Ministry of Home Affairs has introduced a new National Security Clause for foreign companies investing in defence, telecom and private security.

  • It has banned all investment from Pakistan and aims at keeping a close watch on China, besides curbing money-laundering.

The impact

  • MHA believes this would make it easier for foreign investors to get security clearances.

  • It would then be seen in line with PM Narendra Modi's 'ease of doing business' mantra.

The Ministry of Home Affairs (MHA) has introduced a new mandatory security clause - 'National Security Clause' - for foreign companies investing in sectors like defence, telecom and private security in India.

The MHA has banned all investments from Pakistan and, through this clause, aims to keep a close watch on involvement of China in these sensitive sectors. The other stated motive in introducing this clause is to curb money-laundering.

Interestingly, the same ministry had rejected Sun TVs' security clearance recently on the grounds that its promoters Kalanithi Maran and his brother former Union minister Dayanidhi Maran were facing money laundering charges.

It was rejected by Attorney General Mukul Rohatgi, who was of the opinion that this was not a strong reason for considering the entity as a threat to national security.

So here is all you need to know about the MHA's latest security measure.

What is the new 'National Security Clause'?

The clause is part of the new 'National Security Clearance Policy' approved by the Home ministry earlier this month, which basically tries to prevent cases of money- laundering or threats to national security.

The companies coming through the Foreign Investment Promotion Board (FIPB) route to invest in defence, telecom and private security services sectors will have to sign this clause.

It allows the government to terminate operations of these companies, if they are found to be involved in money-laundering, or having links with foreign intelligence agencies or terrorist groups.

These sectors involve huge investments and money inflow, and have been designated as sensitive from the national security perspective.

Keeping watch on China and Pakistan

The MHA order in effect bans any investment from Pakistan. The MHA document does not name Pakistan, it refers to the neighbour as a 'country of concern'.

Moreover, any foreign business executive having served in Pakistan will have to undergo special security vetting before taking any assignment in India.

The MHA plans to keep a close eye on the involvement of Chinese firms in any projects in these sectors in India.

The MHA has also asked department of telecommunications to set up a state-of-the-art testing lab within one year to test equipment and networking systems.

This is to ensure that there is no embedded malware or bug, as 65 percent of telecom equipment in India is said to be of Chinese origin. This is also to check the possibility of any remotely operable device being planted in vital installations by vested interest to carry out espionage, effect major shutdown of power grids, airports etc.

MHA plans to keep a close eye on the involvement of Chinese firms in any projects in crucial sectors in India

The new 'National Security Clearance Policy' approved by the Home ministry earlier this month also stipulates that in these sectors, positions such as Chief Technical Officer and Chief Security Officer should be manned by Indian nationals only.

The Home Ministry has also specified the locations where foreign investment is not welcome - such as those close to the international borders and near vital installations.

The 'ease of doing business' angle

The MHA is also selling their new security clause idea, as a fast-track clearance window, part of Modi's ease of doing business mantra.

According to reports, the security clearance for investment in ports, telecom, civil aviation, television channels and radio stations, will now take within 4-6 weeks, instead of three months that used to be spent in vetting each new case.

The new system is also expected to do away with discretion that often leads to security clearance not being granted since intelligence agencies often raise doubts based on perception.

Suhas Munshi

Suhas Munshi @suhasmunshi