The Hindu Business Line : `Scrapping Press Note No. 18 will be myopic'

A SECTION of India Inc — in particular, that which has been running successful joint ventures with foreign partners — is perturbed over the UPA Government's concerted move to scrap Press Note No. 18 in its bid to usher in larger inflows of foreign direct investment (FDI).

Corporates and certain Government sources, wishing to remain unidentified, maintain that scrapping the provisions of the "domestic investor-friendly" circular would be an extremely myopic decision as it would do more harm than good to the country's manufacturing sector. For, the larger dose of FDI, if at all, could well be at the expense of the numerous currently thriving joint venture operations, they say.

And, to drive home their view, they point to the recent skirmish that the Indian Government had with Suzuki Motor Corporation of Japan, its majority foreign partner in Maruti Udyog Ltd. In the hurried negotiations, what saved the day for the Government as the Indian partner in the joint venture were the provisions of Press Note No. 18, they point out.

Essentially, the press note, which has been a stumbling block for some foreign investors, stipulates that if any foreign investor, who has a running joint venture with an Indian partner and wishes to set up its wholly owned subsidiary in the country in the same line of business, he will have to seek the priorpermission of the domestic partner. For this, the prospective foreign investor will have to furnish a `no objection certificate' from the Indian partner to enable the authorities to process the fresh investment proposal. In effect, in the absence of the NOC, the new investment proposal will stand rejected.

To cite specific instances, Walt Disney's plans for setting up a wholly owned subsidiary had initially faced rough weather following objection by the Modi group, the joint venture partner of Walt Disney India Pvt Ltd. Similarly, Haier's plans for a wholly owned subsidiary were stalled owing to the Baron group standing in the way.

Thus, this seemingly Draconian stipulation, as far as the interests of the foreign investor is concerned, is being viewed, of late, as one of the major factors inhibiting large doses of fresh investment inflow. And with the Congress-led coalition Government eager to being seen as instrumental in luring larger inflows of FDI, the matter has been taken up by the Finance Ministry in concert with the Prime Minister's Office to demolish the policy hurdle.

Industry watchers, however, warn that such a move would immensely benefit the foreign investor but only at the expense of the existing domestic partners. For, once the foreign partner is allowed to set up a wholly owned subsidiary, he would "prefer to have the whole pie rather than share the booty with a domestic partner." In effect, there would be chances that some of the highly successful joint ventures, especially in the auto sector, may face a period of turmoil, these sources point out.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
BSNL switches off Data Access

Sugar millers expect another sweet year ahead

Now, `health' is the promo tool to beat ban

Undertone bullish on Dalal Street

Govt says no to Telstra's Net telephony plan

`Scrapping Press Note No. 18 will be myopic'

Union Bank plans to go global — Eyes bank with branches abroad