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Rediff.com  » Business » Local firms to lose veto in new foreign ventures

Local firms to lose veto in new foreign ventures

By P Vaidyanathan Iyer in New Delhi
May 28, 2003 11:50 IST
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The Centre may provide a sunset clause for Press Note 18, which requires a foreign company to be cleared by its local partner to form another joint venture or a 100 per cent subsidiary in India.

According to a government official, fresh joint venture proposals from foreign companies may not have to comply with the requirement. "However, foreign companies in the existing joint ventures will have to secure their Indian partners' consent," he explained.

The government would prescribe a cut-off date, from when foreign companies would be free from the controversial regulation, the official said. The issue will be taken up by the core group of the Foreign Investment Promotion Board.

The finance and industry ministries had undertaken a review of Press Note 18, following complaints from several foreign companies. A recent US Trade Representative country report also criticised the provision, saying it was a major impediment to investments in India.

It said the Note, which required foreign investors to give reasons for abandoning existing joint ventures in favour of new ones, was restrictive.

The government official said partners in fresh joint ventures could include compensation clauses in their commercial terms and agreements. "This will help both parties protect their interests in case the agreement turns foul," he pointed out.

The move is significant because it aims to satisfy Indian corporates as well as foreign investors. While the existing joint venture arrangements will continue in the purview of the Note, new collaborations will have more space.

Press Note 18, introduced by the industry ministry on December 14, 1988, covers both financial and technical collaborations.

Several foreign companies had complained that the provisions of the Note were being misused by some Indian firms to extract hefty premiums.

To get over the problem, the government was considering a cooling-off period before allowing foreign companies to float fresh joint ventures.

But leaving firms applying after a particular date outside the purview of Press Note 18 would take care of the problem and send a signal to foreign investors about the government's seriousness on continuing reforms.

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P Vaidyanathan Iyer in New Delhi
 

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