In a move that would free up flow of foreign direct investments (FDI) into the country, the government will scrap the stipulation that any foreign company with an existing joint venture would need to get the approval of its existing local partner before making a fresh investment in the same area in India.
The regulation, known as Press Note 1 of 2005, a reworked version of the vintage Press Note 18 regulations, was introduced in 1998 to protect the interest of Indian companies by putting a break on foreign companies changing local partners to suit their business interests. Scrapping of it would remove one of the most archaic rules of India, which was framed to protect local companies against overseas investors.
Many foreign companies have pointed out that this restriction is preventing them from making newer investments in India. It is pointed out that as many as 40 FDI plans are stuck with the government or rejected by it as a result of Press Note 1, with the recent example being Group Danone having to get a no-objection certificate from the Wadias to make a fresh investment in India.
The government has been taking consistent steps to scrap this provision of India?s foreign investment regime. Many believe that the provision has outlived its purpose, as Indian companies have mustered enough size and management capabilities to take on competition from overseas firms.
In 2005, the government amended Press Note 1 by waving it for all fresh investments coming into the country from 2005 onwards. Now, the plan is to waive it for all investments with retrospective effect. Senior government officials said that the ongoing foreign direct investment (FDI) policy review would work out the details of these changes.
?Companies can look at provisions like the conflict of interest clause in their agreements to protect the interests of the parties concerned, a practice most of the companies do anyway,? said a government official.
Indian business houses are of the view that the move to scrap Press Note 1 is a welcome development. However, they point out that a cooling of period condition should be inserted in regulations, stipulating the minimum timeframe before the foreign company can make any fresh investments in the country. ?This cooling off period will give time for the Indian company to get a new partner or a technology, which will help is compete,? said Amit Mitra, secretary-general, Ficci.