The National Security Council has proposed the 'National Security Exception Act' to empower the "government to suspend or prohibit any foreign acquisition, merger or takeovers of an Indian company that is considered prejudicial to national interests."
Sources said NSC has suggested security screening of foreign participation in sensitive sectors, sensitive locations and from countries of concern.
Sensitive sectors were identified as seaports, airports, telecom, Internet service providers, international long distance telecom services, oil refining, gas pipelines, oil and gas exploration, shipping, metallurgy, defence, data processing and pharmaceuticals.
Jammu and Kashmir, Chhattisgarh and North Eastern states and areas in proximity to vital nuclear, space and defence installations and border areas were classified as sensitive locations.
Foreign investment, according to NSC, from countries such as China, Hong Kong, Macau, Taiwan, Pakistan, Bangladesh, Afghanistan and North Korea could threaten security interets as the entities from these countries could be manipulated.
Sources said NSC was of the opinion that flow of unverifiable investments both from tax havens like Mauritius, Cyprus and Cayman
Besides, it was difficult to identify the real ownership in investments from tax havens.
FDI or foreign participation in Indian projects under the present system could be a process for laundering money and Hawala transaction, which were a serious threat to the country's economic security, the NSC said.
"The existing system is flawed in the sense that it does not have a mechanism for examining comprehensively funds coming to sensitive locations, sensitive sectors and from countries of concern, neither at the time of approval nor during the period of operations of foreign entities," the NSC note said.
It suggested foreign participation in sensitive sectors and locations and from countries of concern should be subjected to special security screening both at the time of approval as well as during the entire period of their operation.
Besides, sectoral regulators should seek opinion of intelligence and security agencies and the ministry of finance be made the nodal point for implementation and monitoring of security guidelines.
For all contracts, tenders and agreements entered by state governments, central government departments, PSUs of state and central governments and local bodies, the NSC suggested introduction of a 'National Security Exception Clause,' sources said.
