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Foreign Direct Investment In Private Security Firms

Updated: August 17, 2013 12:48 pm

Since the end of cold war, private security service sector has experienced a spectacular growth. Private security service sector is very diverse in nature. Its activities comprises of various tasks ranging from supporting combat operations to language interpretation Since the end of cold war, private security service sector has experienced a spectacular growth. Private security service sector is very diverse in nature. Its activities comprises of various tasks ranging from supporting combat operations to language interpretation

The Indian government has recently accepted the Arvind Mayaram committee’s report on foreign direct investment in many sectors, including private security firms. The Committee recommended full foreign direct investment in the private security industry. The report, which is in the form of a discussion paper, was submitted to the finance minister and has recommended hiking FDI caps in various sectors including. It recommended hiking FDI in defence from 26 percent to 49 percent, in telecommunications from 74 percent to 100 per cent. The recommendations also state that the hike in caps should come with stringent security riders to allay the concerns of the defence and the home ministries.

Broadly, the panel has suggested that wherever the caps are at 26 percent, they can be raised to 49 percent, where it is at 51 percent, it be raised to 74 percent and wherever 74 percent it should be made 100 percent. The committee’s report has come under severe criticism from many quarters, including the industry. Kunwar Vikramaditya Singh, chairman of Central Association of Private Security Industry (CAPSI), has criticised the move on the ground that it will hamper the prospects of the homegrown industries. He met Home Minister Sushil Kumar Shinde on the 4th July and explained to him the implication of the recommendation of the Arvind Mayaram committee. The Home minister has assured industry leaders that no recommendation that violates the Private Security Agencies Regulation Act-2005 will be implemented.

Industry also got support from political quarters. The main opposition party, the BJP has opposed the move on the grounds that it will be detrimental to the security of the country. Senior BJP leader Murli Manohar Joshi said in an interview that enabling foreign nationals or companies to fully own and control private security agencies will have serious implications for national security. He also pointed out that these security agencies are deployed on many strategic sites like CSIR labs, DRDO complex, private ports, even national monuments like the Qutub Minar and Red Fort. Allowing foreign nationals access to these highly sensitive sites will compromise national security.

In a press statement released by Mr. Joshi, he pointed out that, private security sector in India is governed by the Private Security Agencies (Regulation) Act (2005) and overseen by Ministry of Home Affairs, Government of India. The PSAR Act, 2005, clearly stipulates majority Indian ownership and control as a precondition for issue of license to operate private security business in the country. He also said that attempt to amend the FDI policy for the private security sector through DIPP, Ministry of Commerce without taking cognizance of the federal legislation (PSAR Act – 2005) and without any consultation with the Parliamentary Standing Committee on Home Affairs is not only a serious technical anomaly with legal implications but also against parliamentary protocols.

Since the end of the Cold War, the private security service sector has experienced a spectacular growth. This sector is diverse in nature; its activities comprise of various tasks ranging from supporting combat operations to language interpretation. In terms of operations, people divide the sector in two categories; viz. private security companies and private military companies.

Private security companies specialise in providing security and protection services for assets or people. Their client list mainly includes international organisations, multinational corporations, non-governmental organisations, small and medium-size enterprises and individuals. Compared to that, private military companies are those which participate in actions such as military operations, stabilisation and post-conflict reconstruction, and security sector reform.

The private security service sector is also very diverse in terms of size. It comprises of both, local, small-sized enterprises and stock exchange listed multinational giants. Among the private security companies, G4S is the largest, it operates in 120 countries and has 625,000 employees all around world. Securitas, the second largest company in this sector, operates in 45 countries and employs more than 280,000.

There is a growing trend of commodification of security in international market. Expansion of the private security industry has gained thrust due to the increasing interest of both public (states) and private (NGOs, MNCs, and individuals) players to outsource the security related services. There are many factors responsible for the growth of private security apparatus but the principle two reasons can be classified as the changing international and domestic conditions and the advantage related with the sector.

The growth in demand and supply of private security, globally, has been fuelled by many factors. Analysts opine that transformation in the public police system in many countries has expanded the horizon for private security firms. Many countries in the world, in order to control their public expenditure on security, have created space for the private security service industry.

In India, expansion of private security services has been fuelled by the growth in many sectors of Indian economy, which includes retailing, real-state, infrastructure, entertainment industry and financial services. All these sectors have fuelled the demand for these private security agencies. Private security agencies provide a wide variety of services – from providing security to top businessmen, industrialists and celebrities, to accompanying consignments containing cash (from a bank head-office to a branch, or for replenishing ATMs), gold and precious stones, monitoring the movement of visitors at shopping malls, construction sites and other places.

According to the Central Association of Private Security Industry (CASPI), the sector is employing around 7 million men and women, who provide security cover to the nation. Changing perception of security may have given goose bumps to the security agencies but, it has created growth potential for the private security industries. Private security industry data for the last financial year shows that business has grown many fold, with an estimated 30 percent growth being registered.

DIFFERENCE BETWEEN WESTERN AND INDIAN PRIVATE SECURITY COMPANIES

For the past 20 years, there has been surge in demand for private security companies the world over. Individuals, non- state actors and even states are hiring these private security companies. In India, the private security industry is relatively a new concept, as compared to the West. Indian private security companies still do not possess much expertise in technological security apparatus. In comparison to western security companies, they are still in very nascent stage.

By privatising a number of police and military functions, security is fast becoming a commodity for those who can afford it. This is happening both in developed countries such as United State of America, with a democratic and progressive tradition, as well as in developing countries like India. The globalization of the world economy and the shifting from centralized governments to diffused “governance”, together with the downsizing of regular armed forces of States, which have had important reductions in the public sector both in developed and developing countries are some of the causes behind the rapid development of the privatization of security.

In the western hemisphere, these security agencies have gained more importance than in India. These companies are not only guarding infrastructures, but they also provide mercenaries in the conflict zones. In these western countries, these companies have acquired high-end technology; not only for internal security, but in some cases they also provide assistance to their governments in resolving conflicts. After the attack on United States in 2001, these security companies got more prominence. These companies adopted themselves to the new conditions and developed their industry into a private-military complex. These private military and security companies have increasingly taken over the traditional activities carried out by mercenaries before in the course of the past 20 years. Contrary to mercenaries, private military and security companies are transnational corporations legally registered which obtain contracts from governments, private firms, intergovernmental and nongovernmental organizations. In low intensity armed conflicts or post conflict situations such as Afghanistan and Iraq their employees, contracted as civilians but armed as military personnel, operate in “grey zones” as unlawful combatants without oversight or accountability, under murky legal restraints and often with immunity. Private security companies also protect multinational extractive corporations. In such situations, the employees working for the private security companies protecting the multinational extractive corporations are often found involved in social conflicts with the local populations. In the United States the PMC industry was fueled by the same zeal for market-based approaches that drove the deregulation of the electricity, airline, and telephone-service industries. The military was considered to be particularly well-suited to public-private partnerships, because the need for its services fluctuates so radically and abruptly. In light of such sharp spikes in demand, it was thought, it would be more efficient for the military to call on a group of temporary, highly trained experts in times of war-even if that meant paying them a premium-rather than to rely on a permanent standing army that drained resources (with pension plans, health insurance, and so forth) in times of peace.

One of the major private military company providing military and security services in armed conflicts or post conflict zones is Blackwater, which is based in the United States. It is estimated to have some 2,300 private soldiers in nine countries and a database of more than 20,000 former military personnel ready for deployment and engagement on a short notice anywhere in the world. There are at least 200 foreign and domestic private security companies in Iraq, ranging from major firms such as Aegis Defence Services, ArmorGroup, Blackwater USA Group, DynCorp, and Triple Canopy to far smaller ones. Not all their employees are out there toting guns. Some of their consultancy services are extremely white-collar, involving work such as sitting in front of computer consoles at Regional Operations Centres and monitoring convoy movements.

A number of these private military and security companies are members of the International Peace Organization Association (IPOA) a lobby, which promotes the activities and the image of its member firms. This group of pressure has launched a marketing campaign to take away the stigma that the label mercenary brings to the activities performed by private military and security companies associated with this organization. One of IPOA’s main aims is to provide its affiliates private military/security companies with an aura of legitimacy and as a better option than the troops provided by UN Member States to the UN Peace Operations mandated by the Security Council or the General Assembly. In order to obtain this it is absolutely necessary that the activities of these PMSC are not labeled as mercenary, though in any instances they do carry out mercenary work.

Most of the private security guards recruited by these transnational companies perform military or quasi-military tasks in situations of low intensity conflicts or post conflict situations, operating in a grey area with limited oversight or army control. A large number of these private security guards are neither nationals of one of the parties to the conflict nor residents of the country in conflict. Although they were not specifically recruited to take part in hostilities, their contracts did not specify either they would receive military training and would be militarily armed. Recruited in their respective countries from all over the world as “private security guards” to provide protection, most of them have in fact taken direct part in conflicts. They are not members of the armed forces of a party to the conflict and they have not been officially sent by their respective States. They are essentially motivated by private gain. These are all characteristics of the mercenary-related activities and modalities of the conflicts of the twenty-first century.

In India, these security companies have not gained this much importance. These companies have been restricted to securing people and assets. .Indian private security agencies provide a wide variety of services – from providing security to top businessmen, industrialists and celebrities, to accompanying consignments containing cash (from a bank head-office to a branch, or for replenishing ATMs), gold and precious stones, monitoring the movement of visitors at shopping malls, construction sites and other places and don’t have license to kill as the companies of west have.

There are nearly 15,000 security agencies in India, creating 10 lakh employment opportunities. In the NCR (National Capital Region) alone, there are 6 lakh private security guards employed. During the year 2010, private security agencies got a boost, when the Private Security Regulation Act, 2005 was implemented. This regulation bestowed the private security agencies with more responsibilities. Private security agencies have cropped up like mushrooms in every nook and corner of the country, but this regulation gave a much needed corporatised role to the industry. This regulation allowed 49 per cent foreign direct investment.

Terror strikes in the United States in 2001 have changed the scenario for the private security agencies. Demands have been made for the upgradation of the industry. In its investigative story, the Washington Post describes how the private security industry has helped the U.S. government in tracking terror modules in different countries. The story also describes the dependency of the U.S. government on private security agencies in combating terrorism.

Private military and security companies currently offer and provide in the international market a broad spectrum of services such as building and site security, convoy and transport security, close individual security, advisory and training of local forces, air support, logistical support, prisons security, propaganda tactics, intelligence, covert operations and surveillance. These tasks used to be considered “inherently governmental” (i.e. functions which cannot be performed by the private sector) and were traditionally fulfilled by the national armed forces and the police. They also provide armed protection for transnational corporations in unstable regions. Their services are used by governments and non-governmental organisations, transnational corporations, humanitarian organisations, the media, the United Nations and international organisations.

June 24, 2013

Hon’ble Sh. Sushil Kumar Shinde,

Home Minister,

North Block,

New Delhi-110001

Dear Sir,

Subject: Proposal by Mayaram Committee, DEA, Ministry of Finance to remove Foreign Ownership (FDI) cap on Private Security Agencies – A serious threat to National Security

The Central Association of Private Security Industry (CAPSI) is the apex body of Private Security Sector of India.
Recent reports in financial dailies regarding the recommendations by Mayaram Committee, Department of Economic Affairs, Ministry of Finance regarding removal of foreign ownership cap on sectors with implications on national security is a cause for serious concern. It is also disappointing to note that the Hon’ble Finance Minister, who has held charge of Ministry of Home Affairs in the recent past and is well informed about these concerns; has chosen to endorse the Mayaram Committee report in the garb of ‘liberalising the FDI regime’ and forwarded the recommendations to Department of Industrial Policy & Promotion (DIPP), Ministry of Commerce, for changes in the consolidated FDI Policy.
We would particularly like to draw attention to the proposal for changing the FDI / foreign ownership cap on Private Security Agencies sector from current 49% to 100%. Thereby, allowing foreign nationals 100% ownership & control private security agencies.
Private Security sector in India is governed by the Private Security Agencies (Regulation) Act (2005) and overseen by Ministry of Home Affairs, Government of India. The PSAR Act, 2005, clearly stipulates majority Indian ownership and control as a precondition for issue of license to operate private security business in the country. (Clause 6 Section 2 of the Act)
Further, when the said Act was presented on the floor of the parliament by the then Hon’ble Home Minister, Shri. Shivraj Patil, he had placed on record that the principal objective of the Private Security Agencies (Regulation) legislation is to check the proliferation of foreign owned and controlled private security agencies in the country, in view of national security concerns. The same is also recorded in the Statement of Objects of the Act.
It need not be emphasised that any change in regulation that enables foreign nationals or foreign companies to directly own and control private security & detective services agencies in the country can pose to be a serious threat to national security. Particularly, when these agencies directly employ over 70 lac workers including lakhs of ex servicemen retired from defence, para military and police forces.
While one appreciates the need for Foreign Direct Investment in capital intensive sectors like Road infrastructure, Aviation, Power generation & distribution etc., it is difficult to understand the rationale for FDI in Private Security sector. This manpower intensive sector has thus far attracted less than US$ 100 million worth of foreign investment (2005 – 2013) and by any stretch of imagination, allowing 100% FDI in the space shall not yield any significant gains in terms of foreign investments in the country.

Based on the above, it is apparent that the proposal for change in FDI cap in Private Security sector is an ill-conceived idea that could result in compromising the nation’s security for no significant gains in terms of foreign investment inflows. Moreover, any such move warrants an amendment to the Private Security Agencies (Act) of 2005 prior.

In view of above, we sincerely urge you to kindly consider our above mentioned concerns and ensure that national and sectorial interest are not compromised

Yours Sincerely,

For Central Association of Private Security Industry,

Kunwar Vikram Singh

Chairman

This industry is transnational in nature, and is growing very rapidly, particularly since the recent conflict situation in Afghanistan and Iraq, with an aggregated estimate of contracts between $ 20 and $ 100 billion annually. According to some sources, the global security industry, which was economically insignificant before 2001 is around $200 billion at present. Although the industry has developed worldwide, highly professional companies from the United States of America and the United Kingdom are responsible for more than 70 per cent of the services in the world market. These private corporations are specialised in delivering military and security services in zones of armed conflict or post-conflict situations with a high level of insecurity. Some private military and security companies are listed on stock markets and generate profits for their investors. Most of these corporations have in their executive boards former military personnel of high rank, or senior officers of the civil or the intelligence services, a phenomenon many scholars describe as the “revolving door syndrome”.

Most developing countries hear persistent demands from foreign manufacturers and advocacy groups for raising foreign investment caps in high-tech industries, particularly in the usually laced with suggestions that increased foreign investments would result in rapid technological upgradation of the domestic industrial base. Some demands for foreign direct investment (FDI) levels have been as high as 74 per cent, numbers that could be particularly problematic, once the fragile behavior of foreign institutional investments (FIIs) has been fully factored-in. On a closer enquiry, some of these proposed arguments could be rather simplistic, particularly when most MNCs are increasingly using tax havens for locating their IPRs (Intellectual Property Right), rendering their operations obscure to any meaningful enquiry or supervision by other countries.

THE PRIVATE SECURITY AGENCIES (REGULATION) ACT, 2005

Definitions.-In this Act, unless the context otherwise requires

(a)“Armoured car service” means the service provided by deployment of armed guards along with armoured car and such other related services which may be notified by the Central Government or as the case may be, the State Government from time to time.

(b) “Controlling Authority” means the Controlling Authority appointed under sub-section (1) of section 3.

(d) “Private security” means security provided by a person, other than a public servant, to protect or guard any person or property or both and includes provision of armoured car service.

(e) “Private security agency” means a person or body of persons other than a government agency, department or organisation engaged in the business of providing private security services including training to private security guards or their supervisor or providing private security guards to any industrial or business undertaking or a company or any other person or property.

(f) “Private security guard” means a person providing private security with or without arms to another person or property or both and includes a supervisor.

Appointment of Controlling Authority

(1) The State Government shall, by notification, designate an officer not below the rank of a Joint Secretary in the Home Department of the State or an equivalent officer to be the Controlling Authority for the purposes of this Act.

(2) The State Government may, for efficient discharge of functions by the Controlling Authority, provide it with such other officers and staff as that Government considers necessary.

Persons or Private Security Agency not to engage or provide private security guard without licence: No person shall carry on or commence the business of private security agency, unless he holds a licence issued under this Act: Provided that the person carrying on the business of private security agency, immediately before the commencement of this Act, may continue to do so for a period of one year from the date of such commencement and if he has made an application for such licence within the said period of one year, till the disposal of such application: Provided further that no private security agency shall provide private security abroad without obtaining permission of the Controlling Authority, which shall consult the Central Government before according such permission.

Eligibility for licence

An application for issue of a licence under this Act shall only be considered from a person after due verification of his antecedents.

A licence granted under this section

(a) Shall be valid for a period of five years unless the same is cancelled under sub-section (1) of section 13.

(b) May be renewed from time to time after the expiry of five years, for a further period of five years on payment of such fee as may be prescribed.

Conditions for commencement of operation and engagement of supervisors

(1) Every private security agency shall, within six months of obtaining the licence, commence its activities.

(2) Every private security agency shall ensure imparting of such training and skills to its private security guards and supervisors as may be prescribed: provided that the person carrying on the business of private security agency, before the commencement of this Act, shall ensure the required training to its security guards and supervisors within a period of one year from the date of such commencement.

(3) Every private security agency shall, within sixty days from the date of issue of the licence, employ such number of supervisors, as may be prescribed.

(4) A private security agency shall not employ or engage a person as a supervisor unless he fulfils the conditions specified in sub-section (1) of section 10.

(5) While engaging a supervisor of private security guards, every private security agency shall give preference to a person who has experience of serving in the Army, Navy, Air Force or any other Armed forces of the Union or State Police including armed constabularies and Home Guards for a period of not less than three years.

Eligibility to be a private security guard

(1) A private security agency shall not employ or engage any person as a private security guard unless he:

(a) Is a citizen of India or a citizen of such other country as the Central Government may, by notification in the Official Gazette, specify.

(b) Has completed eighteen years of age but has not attained the age of sixty-five years.

(d) Has completed the prescribed security training successfully.

(e) Fulfils such physical standards as may be prescribed; and

(f) Satisfies such other conditions as may be prescribed.

(2) No person who has been convicted by a competent court or who has been dismissed or removed on grounds of misconduct or moral turpitude while serving in any of the armed forces of the Union, State Police Organisations, Central or State Governments or in any private security agency shall be employed or engaged as a private security guard or a supervisor.

(3) Every private security agency may, while employing a person as a private security guard, give preference to a person who has served as a member in one or more of the following, namely

(i) Army

(ii) Navy

(iii) Air Force

(iv) Any other armed forces of the Union

(v) Police, including armed constabularies of States

(vi) Home Guards

In India, Private Security Agencies Regulation Act, 2005 (PSAR), was created to improve private security standards in the country by issuing licenses to security companies. It also sets minimum standards for security guards, such as 160 hours of training before deployment. CAPSI advises that providers view PSAR as a floor, not a ceiling, However it recommends that security companies train guards for two months before deployment. The law also requires that owners and major shareholders of private security companies in the country be citizens of India. But it does not prevent outside firms from entering into business relationships with local firms. Partnerships are being formed between local providers and those located in Israel, Europe, and the United States.

Creating confusion, some states in India have their own regulations for the security industry as also happens in the United States. For example, Maharashtra has the Maharashtra Security Guard Board (MSGB), which was created in 1981. The MSGB primarily regulates the welfare of the guards (by setting a minimum wage, for example) rather than regulating for security.

After the Mumbai terror attacks, some in the industry are also pushing for the government to grant licenses for private security guards to carry weapons. Currently, most security guards in the country are unarmed. The few armed guards in the country are individuals who have been granted an arms license and have their own weapon. Many of these security personnel are ex-servicemen.

Industry estimates that there are over 50 lakhs private security personnel across the country who are engaged in watch and ward function at thousands of establishments including government organizations and sites of strategic significance like CSIR labs, DRDO complexes, private ports, oil refineries, power projects, gas pipeline, private airports, IITs/IIMs. As the state police departments and other government security agencies have been more focused on counter terrorism and other law & order challenges, the private security agencies have played a role in securing our cities including residential complexes, shopping malls, cinemas, metro stations, toll ways, fuel stations, bank, corporate offices and other public infrastructure. Engagement of CISF in aviation security function and other critical duties has created a serious vacuum in area of Industrial security which has been taken over by these private security agencies.

It is also widely known and reported in the media that the Ministry of Home Affairs is considering a proposal to allow Private Security Agencies holding valid licenses under PSARA Act (2005), to obtain firearms for security of their clients, particularly, bank establishments and industrial sites. In such a scenario, it is even more dangerous to allow foreign ownership and control of such licensed private security agencies that will wield firearms in large numbers across the country.

Any change in regulation that enables foreign nationals or foreign companies to directly own and control private security services agencies in the country can pose to be a serious threat to national security. Particularly, when these agencies directly control over 50 lakh workers in the country who are deployed at highly sensitive sites and also have access to technological equipment’s that could be misused by foreign entities to compromise national security.

By Nilabh Krishna

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