On the heels of a US Congressional panel raising security issues about Chinese telecom equipment, the Finance Ministry wants the foreign direct investment policy in this segment reviewed. The Ministry has asked the Foreign Investment Promotion Board (FIPB) to review the FDI policy in the telecom equipment manufacturing sector in a bid to tighten controls.
At present, foreign equipment manufacturing companies are allowed to own 100 per cent stake in their Indian subsidiaries.
The review follows a report released by a US Congressional panel that warned American companies against buying equipment from Huawei and ZTE. “Based on available classified and unclassified information, Huawei and ZTE cannot be trusted to be free of foreign state influence and thus pose security threat to the United States,” the report had stated.
While both Huawei and ZTE have dismissed these allegations, the Indian authorities want to do their own due diligence. “The Department of Telecom and the Department of Science will be told to assess whether the potential risks envisaged are possible and, secondly, whether it is possible to take any pre-emptive steps in this regard,” stated an internal Government note seen by
But it is not clear what changes the Government could bring about in the FDI norms. In 2002, Huawei had filed an application with the FIPB seeking permission for manufacture and trading of telecom equipment. This proposal was taken up in various FIPB meetings but remained pending owing to reservations by the security agencies.
Another proposal was filed in March 2005 stating that the company wanted to participate in turnkey telecom infrastructure projects including supply of hardware and software.
Even as these proposals were being discussed, the Government announced a new FDI policy in February 2006, that which placed the activity of wholesale trading under the automatic route.
Huawei subsequently withdrew both the applications and since then has been doing business in Indian without any restrictions.
“Since new information has surfaced, the FIPB will see whether any FDI policy parameters need to be changed and, if so, at what stage,” said a top Government official.
This is not the first time Indian authorities have raised concerns against the two Chinese companies. A few years back, the DoT had unofficially told operators not to buy equipment from Huawei and ZTE. After the two companies protested, the DoT introduced import norms that were applicable to all equipment vendors including those from Europe.