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Press Note 18 to be scrapped this week

November 29, 2004 08:54 IST

Foreign investors seeking to set up joint ventures will no longer require a clearance from their Indian partners for setting up another company.

The government has decided to scrap Press Note 18 for all future ventures, while deciding to modify the norms for existing ones. For existing ventures, the government is likely to stipulate a sunset clause of three years. The amendments are to be notified this week.

According to the proposed norms, the responsibility for providing proof to the Foreign Investment Promotion Board that the new proposal will not jeopardise the interests of the existing joint venture will have to be shared between the Indian partner and the foreign investor.

The note, issued in 1998, deals with guidelines pertaining to the approval of foreign or technical collaborations under the automatic route for companies with previous ventures or tie-ups in the country.

Commerce and Industry Minister Kamal Nath had recently said modifications to the Press Note 18 would be issued soon. Ministry officials said the he had okayed the changes over the weekend.

While the government has decided to scrap Press Note 18, analysts point out that it is nearly redundant even for existing ventures as none of them has a conflict that require the note to come into play.

The clause that calls for the approval by the FIPB in the case of "previous joint venture or technology transfer or trade-mark agreement in the same or allied field in India" will be now limited to "same field" only.

The concept of "allied" is being done away with as it has been found that the term appears to be vague. Under the National Industrial Classification Code of 1987, industries are classified up to the 4-digit level. While "same" activities are in the 3-digit level "allied" activities are in the 4-digit level.

A company seeking permission in the "same" category, for instance "manufacture of transformers", will have a specific 4-digit code of 360.2 as per the National Industrial Classification Code, but the same activity under "allied" will be clubbed under the 3-digit code of 360 as "manufacture of electrical industrial machinery, apparatus and parts thereof".

No holds barred

BS Economy Bureau in New Delhi