The review of the provisions under Press Note 18 has gained momentum, with the Cabinet Secretary convening a meeting to discuss the issue on Thursday.
Senior government officials told Business Standard that the Planning Commission was preparing a background paper on the note, which would be discussed at the meeting.
A final decision on the issue may, however, still take time as there is no consensus yet between the finance and commerce ministries on the issue. The Left also could queer the pitch as the CPM on Monday issued a statement saying that the Note should not be scrapped.
While the finance ministry is in favour of scrapping the note, the commerce and industry ministry, which handles policy on foreign direct investment, is of the view that it should be continued with minor modifications. The Planning Commission has not yet finalised its views. The initial draft, however, is in favour of a gradual dilution, said officials.
Officials in the industry ministry said the note still had its utility. "In the recent Maruti episode, the provisions of Press Note 18 forced Suzuki to seek government approval for its new venture in India. Moreover, no country in the world has a fully automatic route for investments of this type. Even China does not permit investments without government approval," an official said.
The officials said certain provisions of the note could be done away with. For instance, in cases where the joint venture had ceased to exist, the requirement for government permission was redundant.
Another alternative could be to put the onus on the Indian partner, who could be asked to justify his objections to the new venture by his foreign partner. The system now was heavily loaded against the foreign company, they said.
Press Note No 18, issued in December 1998, deals with guidelines pertaining to approval of foreign or technical collaboration under the automatic route in case of companies with previous ventures or tie-ups in India.
The provisions stipulate that investors have to seek approval of the Foreign Investment Promotion Board for joint ventures or technology transfer agreements, giving detailed circumstances in which they find it necessary to set up a new joint venture or enter into a new technology transfer in India.
One fallout of the provisions of the note is that domestic companies failing to bring in their share of funds for necessary expansion, have prevented the foreign partner from going into other 100 per cent owned ventures.
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