Last year when Japanese cars major Suzuki wanted to
set up a new venture its own, the government forced it
to stick with its Indian partner, Maruti Udyog.
other Indian companies have effectively prevented their
overseas collaborators from striking out on their own.
Examples: Asian Paints (ICI), Dabur (Nestle), Modi (Walt
Disney), YK Birla (Kennametal), Baron (TCL), Usha Group
(Draeger) and Graphite India (Amiantit). In each of these
collaborations, the stumbling block for the foreign partner
was a piece of regulation called Press Note 18 introduced
Note 18 had stipulated that all foreign partners in JVs
require a no objection certificate (NoC) from their Indian
week, prime minister Manmohan Singh announced the withdrawal
of the NoC clause in Press Note 18. Now, foreign investors
with more than three per cent stake in joint ventures
being formed henceforth will need a single window clearance
from the government alone. Effectively the move spreads
out a red carpet to many billion-dollar companies, which
want to extend their operations in Asia''s fourth largest
the revised guidelines issued under the new Press Note
1 all new FDI proposals will be approved automatically,
subject to sectoral policies regarding limits of equity
holdings by the foreign partners, and the strategic importance
of the sector. The revisions come into effect immediately.
revised guidelines state that prior approval of the government
would be required only in cases where the foreign investor
has an existing JV or technology transfer / trademark
agreement in the same field. Even in cases of foreign
investors with a joint venture in the same field, the
requirement of the Indian partner''s approval has been
In cases where the existing joint venture is defunct or
sick, no permission would be required. Similarly, venture
capital funds registered with the Security and Exchange
Board of India too need no prior approval.
the new UPA government took office in May 2004, the goodwill
generated by the father of economic reforms gave a push
to FDI proposals. Since then, FDI applications nearly
doubled to 835 in number, from the corresponding period
the previous fiscal.
economy is currently growing at an annual average of 6
per cent. Despite initial trickle, FDI flows have increased
riding this growth, as well as fuelling it. Manmohan Singh''s
government aims to boost FDI to about $10 billion a year,
still way behind the $40 billion that China attracts annually.
investment in the last 6 months rose 68 per cent to 2.38
billion dollars, mostly going into the electrical, pharmaceutical,
telecommunications, fuels and metallurgical sectors.
Inc has, at least overtly, welcomed the revision. FICCI
president, Onkar S Kanwar, expressed ''satisfaction'' on
the PM''s new rule.
and industry minister Kamal Nath said in a statement that
Press Note 18 would not apply to joint ventures entered
into from Wednesday. But he advised future joint ventures
to include ''conflict of interest'' clauses in their agreements
to protect the interests of all parties. The requirement
to get a NoC by the FDI partner was sometimes exploited
by Indian partners to extract certain advantages from
their foreign partner.
see this step only as partial relief. There are other
issues and policies that need to be fine-tuned to ease
the flow of investments into the country. Like high import
tariffs on raw materials,
high rates of stamp duty, the restrictive Urban Land Ceiling
Acts and Rent Control Acts that dampen the flow of FDI.