Foreign direct investment, or FDI, may be a phrase that the Left parties in India detest. But the Manmohan Singh government's rejection of Chinese investment into India's port sector has upset the Left parties.

Last month, Communist Party of India-Marxist general secretary Prakash Karat came out with an unusual request: allow Chinese FDI into the Rs 4,360 crore (Rs 43.60 billion) Vizhinjam Deep Water International Transhipment Terminal in Kerala.

Karat said: "The tenders had been cleared, the prime minister was expected to lay the foundation stone and the work was about to begin. But suddenly they found that Chinese companies could not be given security clearance."

"Are the US companies, which have projects in Pakistan, disallowed to take up port projects in India?" Karat asked. "If you are allowing other countries to bid, why stop China? If American companies can take up work, both, in India and Pakistan why bar the Chinese companies?" Karat asked.

Approval refused

In August, the Manmohan Singh government refused to approve the award of a contract to a consortium consisting of two Chinese companies -- Kaidi Electric Power Company, and China Harbour Engineering Company -- and Zoom Developers of Mumbai for the development of the Vizhinjam port.

The Vizhinjam Terminal is expected to substantially cut down 11.4 per cent freight costs of Indian exporters (compared to 6.1% world average freight cost). Vizhinjam has huge advantages over other ports in the country as the port needs no dredging. The natural depth at Vizhinjam is 24 meters, which is the best compared to other ports in the world.

Last year, the Congress-led Kerala government headed by the then chief minister Oommen Chandy had awarded the contract to the Chinese consortium. And the Left parties, who are now in power in Kerala, had extended full support to the project.

But the Centre's rejection of Chinese firms has upset the Kerala government and the Left parties so much that an all-party delegation from the state met with Prime Minister Manmohan Singh to plead for the project's approval with Chinese FDI.

More Chinese investments 'blocked'

It is not just the Kerala port alone where Chinese investments have been virtually 'blocked' for the time being. Last month, the Central government asked the Chennai and Mumbai Port Trusts to reject the bid of the Hong Kong-based Hutchison Port Holdings for the construction of new container terminals at the two ports.

HPH runs 27 international port operations across the world, and runs 14 ports in China and Hong Kong and was partnering the Indian firm, L&T, in joint bids for Chennai and Mumbai.

Security concerns

Why has the government rejected bids by Chinese companies into India's port sector?

Officially, the reason cited is "security concerns." Indian officials say Chinese firms are not given entry to key Indian port projects on grounds of national security.

The security issue figured at the two-day meeting of the India-China Eminent Persons Group in New Delhi held on September 25 and 26. There the Chinese officials registered concern over the blacklisting of China-based firms from key Indian port projects.

Former Kerala chief minister A K Antony, during whose regime two years ago the Vizhinjam port project details were finalised, says it is not fair that the Central government is holding up the Chinese tie-up for port development.

"The Vizhinjam port project with foreign investment and technology participation is the best thing to happen to the country's port sector. All the political parties in Kerala have now requested the Central government to approve the project fast," Antony told rediff.com.

According to him, the Centre has the right to examine all the security aspects in big, key infrastructure projects like ports. "I am sure that the necessary security clearances will be given soon and the port project will take off," Antony added.

Changing rules?

CPI-M politburo member S Ramachandran Pillai agrees. "We do not know why the government at the Centre has blacklisted Chinese firms and disallowed them to participate in the Vizhinjam port development project in the name of security," Pillai said while speaking with rediff.com.

"We will take up the issue with Prime Minister Manmohan Singh. We are collecting all the information regarding the port project and the security aspects," he said and pointed out that the Chinese consortium's bid was rejected despite winning a global tender.

CPI-M leaders say the stumbling block on the port project has turned out be an opportunity for the party to compel the Central government to change the rules for dealing with China.

India has always thought twice before getting into a pact with China since 1962, when the Chinese sent troops across the Indian dealing a body blow to the then prime minister Jawaharlal Nehru. Although India-China relations, especially on trade and business fronts, have improved in the last few years, India has been reluctant to allow Chinese participation in infrastructure projects like power, ports and airports.

Lobbying begins

The Left is these days lobbying to compel the government to allow Chinese multinationals to undertake strategic projects in the country, even though the Left has been a vehement opponent of foreign direct investment in strategic projects.

Pillai says the Left has opposed FDI into key projects in India. "But our question is if the government can allow FDI by American and European firms into strategic sectors, why can't the Chinese be allowed too?" he asked.

A team of CPI-M leaders, led by Karat, is to meet the prime minister later this week to take up the issue of Chinese participation in the Vizhinjam port.

And the Kerala government headed by Chief Minister V S Achuthanandan is keen to ensure that the prime minister inaugurates the project with Chinese participation when he comes down to Kerala on November 1.