Alarm bells have been rung by the National Security Council as it's concerned about the flow of foreign direct investment, FDI, from tax havens and by the increasing participation of foreign players in the economy. The National Security Council has proposed a security blanket for FDI. It has suggested screening FDI into sensitive areas like J&K, Chhattisgarh and the North-eastern States.

It has shortlisted atleast nine countries including China, Pakistan and Bangladesh as countries of concern that need special security screening. The NSC has identified several sectors. These include sectors like pharmaceuticals, roads, oil exploration, refining, data processing, shipping, which have been declared as sensitive.

Is the National Security Council’s caution on foreign direct investment, FDI, justified? They plan to screen and monitor FDI coming in from sensitive countries into sensitive sectors. Is the government being practical and prudent or paranoid? Former cabinet Secretary, TSR Subramanium, Mananging Director, O(X) US Investments, Surjit Bhalla and Director & Chief Executive, ICRIER, Rajiv Kumar debate the issue.

Excerpts from an interview given to CNBC-TV18

Q: The government listed out several shortcomings in the present mechanism, which is why it says it’s being forced to overhaul the system. Do you think the government at this point in time is acting prudently or is this a case of paranoia?

Subramanium: One has to see the fineprint in this. But from the trend of what has appeared - you mentioned the government is saying this - I think this is one wing of government.

Q: So is it paranoia?

Subramanium: I won’t use that word but this is probably the opening gambit of the intelligence agencies to put pressure on the other side, so that a negotiated settlement can be arrived at.

Q: But everybody else does it, we are doing it as well, what’s wrong with it?

Bhalla: First of all somebody very famous once said that military intelligence is an oxymoron, a contradiction in terms. So, therefore we should look at where it is coming from. Second, this national security business, patriotism is the first refuge of every scoundrel and national security is the first refuge of anybody who wants to oppose whatever. Third, now lets get into some practical thing, everybody has got a law, everybody has got a law against murder, everybody has got a law against national security but do you look at what they do with those laws, whom do you ask. So therefore, if somebody comes up and says they have got a law, so why don't we get one - let’s  go one step further and see what they do with the law.

Q: Do you have problems with them bringing in new initiatives or do you have problems with them trying to strengthen the existing mechanism?

Bhalla: Can you just tell me what is broken, what is wrong and what is happening today with our economy? We are getting foreign investment, we are getting domestic investment, we are getting employment, we are getting global. What is this national security consideration?

Q: They are saying that the existing companies should be required to take approval before starting any new activity in sensitive sectors, locations or receipt of foreign investments from countries of concern. In case of mergers and acquisitions involving foreign participation, security screening should be done by either the Reserve Bank or Sebi in consultation with intelligence agencies. What sort of a signal is this going to send out?

Kumar: The first point is that I am a member of the National Security Advisory Board and I think this is a sort of thing which should have been put up to the advisory board because it consisted a whole spectrum of people across the economy, and this exactly the sort of issue which should have been discussed, which I am afraid wasn’t.

I say this because the intelligence wing of the military or whatever is going to pronounce the economic policy and then hold it hostage as it were and of course we will get nowhere. If the Chinese tomorrow register a firm in the US and they bring in investments from the US into India. How are you going to trace that? It’s going to become a nightmare.

Q: Is there any point then to the government bringing in the National Exception Act?

Kumar: I don’t think that anybody wants to say this. This is a clear case of where everybody is innocent and FDI (from everyone) is entitled to come in until he or she is proven guilty or otherwise.

Q: If the government is listening to this discussion, what have you to say to them?

Bhalla: This issue came up in the capital account convertibility also and asked the question there. Can anybody please tell me how to identify laundered money, has there been any bank or any institution in the world that can identify laundered money. Isn’t it time that we graduated a little bit from this naiveté and this nonsense?

Q: On the basis of what you have just heard from this discussion on the suggestions made by the NSC. How much of this do you actually think will go through?

Subramanium: I think very little because we should not go back 50 years in time and I think a lot of it is impractical. Let us not get confused. Security and intelligence is paramount but we should not use that label to give the wrong signals. In any case, much of it is unimplementable and unrealistic.