KOLKATA - The Indian government is drafting a new foreign direct investment (FDI) policy that will, for the first time, include China on a list of countries not limited to Pakistan and Bangladesh that are considered a sensitive for India's national security.
New Delhi has long been wary of allowing Chinese to invest in sensitive sectors, such as ports and telecommunications, but the new edict will extend security reviews to all sectors, including such innocuous sectors as household appliances. For the first time China will be officially labeled a "security risk".
Once the new FDI norms come into effect, it would mean an end to all automatic clearances for Chinese investments under India's supposedly liberalized FDI laws as each an every investment coming from China will have to undergo scrutiny by the Indian security agencies.
Until now, India was selective about imposing restrictions. For instance, only investments in sectors like ports, aviation and telecom and Internet services were selectively screened. But the new framework has reportedly increased the security filter to cover a cross-section of important sectors, such as drugs and pharmaceuticals, data processing, metallurgy, IT hardware, data processing, hydrocarbon exploration, pipelines and refineries and consumer goods.
The new framework may still be under formulation, but Chinese companies have already started facing serious discrimination in India compared with investors from other countries. Take the recent disqualification of two telecom companies, one Chinese and the other US-based, from the world's largest Global System for Mobile communication (GSM) network tender floated by India's largest government-controlled telecom company, Bharat Sanchar Nigam Ltd (BSNL).
Worth about $4 billion, this tender for about 60 million new GSM lines was tendered last week and was supposed to be open to all global telecom companies. But when announcing the opening of the tender, BSNL said that Chinese major ZTE and Motorola were disqualified since these two companies "failed to meet the stringent technical criteria stipulated by the tender".
BSNL did not specify what it meant by "stringent technical" norms, but it is easy to guess what these are. According to sources, both companies were eliminated on security grounds. ZTE is a Chinese company; Motorola declared in its tender offer earlier that it was sourcing a significant part of its equipment from Huawei, another Chinese vendor. According to India's intelligence agencies, like the Research and Analysis Wing (RAW) and the Intelligence Bureau, Huawei has been "responsible for sweeping operations in the country". Consequently, the final bids have now narrowed down to just three European vendors, Ericsson, Nokia and Siemens.
Indeed, the two countries have never been comfortable with each other, and that has been going on for decades. Ever since the eruption of border skirmishes between India and China in 1962 that gradually developed into an emotional posturing called "The Chinese Aggression", Indians and Chinese have viewed each other with mutual suspicion.
Although the two countries have settled many of their differences in the ensuing four decades, the paranoia about China as a security threat seems to be increasing daily in India. For instance, India now feels, said one recent report, that investments from not only China but those from Hong Kong and Macau should also be screened. Besides, investments from North Korea, Taiwan and Afghanistan, too, are being included in the sensitive list. The current FDI norms just categorize Bangladesh and Pakistan as "security risk" countries.
According to the National Security Council, foreign investments from these countries should not only be subjected to special security screening at the time of approval but also during the entire period of operation. The NSC also wants to be kept in the loop for all investment approvals. It has suggested that before each approval, India's businesses should seek its opinion, even if such investments involved an Indian partner.
Clearly, these moves, which a local newspaper editorial terms "anti-Chinese", have started bothering the Chinese authorities. In fact, at an India-centric event organized in Beijing last month by an influential Indian industry chamber, Wang Jinzhen, the secretary general of the China Council for Promotion of International Trade reportedly expressed his concern about India's attitude toward Chinese investments.
He said that several Chinese companies were eager to invest in India in a wide range of industries, but were getting stymied and discouraged by the "over-cautious attitude toward Chinese investment and a stream of anti-dumping cases filed in India against Chinese companies".
Criticism about the present government's security stance are emerging from within India as well. The business sector, eager for Chinese investment and technological cooperation, is worried about the rising anti-China tide. It took pressure from the country's largest business, Reliance Industries Inc, to get the government to loosen up on visas for Chinese technicians needed for its projects.
On the political left, the Communist Party of India-Marxist (CPI-M), that lends crucial support to the current Congress Party-led government, wants the government to explain why it considered Chinese investment in infrastructure projects posed a threat to India's security. In August, India refused approval of a port terminal contract to a consortium consisting of Chinese companies - Kaidi Electric Power Company and China Harbor Engineering Company. The CPI-M feels such refusals go against India's foreign policy of seeking closer ties with China.
Yet NSC sources say that India is just following the footsteps of other countries such as the US and Britain. For instance, in justifying the NSC's moves, India's security advisor M K Narayanan cited in a recent TV interview that even the US had security checks on foreign investments that authorized the president of the US to block or suspend mergers, acquisitions or takeovers by foreigners on grounds that they may threaten its national security.
The NSC also says that British norms mandate that all foreign telecom equipment should be certified by the government before its is mass produced and distributed in that country.
Meanwhile, the Indian government may look down on the Chinese with suspicion, but it seems that most Indians feel positively about their next-door neighbor. According to a recent public opinion survey on Americans and Asians by the Chicago Council on Global Affairs, about 56% of Indians and 46% Chinese felt they were partners rather than rivals, even as 66% of Americans saw the two Asian biggies as rivals. The survey added that 72% Indians viewed China's economic growth positively, and interestingly, both South Koreans and the Chinese viewed that India practiced fair trade.
(Indrajit Basu is a Kolkata-based journalist.)
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