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Monday, Feb 03, 2003

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Setting up of wholly-owned arms — Status quo likely for joint venture partners

Ambarish Mukherjee


DESPITE pressure to scrap Press Note 18 of 1998 on foreign direct investment, the Government intends to keep it in place. The Government sources have confirmed to Business Line that "at present, there is no formal proposal to scrap Press Note 18." The concerned note denies the automatic approval route to foreign companies having existing joint ventures in India that now want to set up wholly-owned subsidiaries,

This would mean that companies which already have operations in India will not be able to avail themselves of the automatic approval route for their investments provided by the Reserve Bank of India.

These companies will have to continue to route their proposals through the Foreign Investment Promotion Board (FIPB).

Sources said that there had been a proposal mooted to this effect, it was found that the provisions of the Press Note 18 was working as a safety valve for both, the domestic and foreign investors.

However, there is a continuous flow of requests from various foreign companies to remove Press Note 18, the official said.

According to the provisions laid down in the note, if any foreign company, which has an existing joint venture in India, wants to set up a wholly-owned subsidiary in the country in the same or allied field, the company has to get a no-objection certificate from the Indian joint venture partner.

This often leads to conflict of interest and the Government steps in to help resolve the matter. Citing an example, a Government source said "right now, there is a proposal from Kennametal of the US which is buying out Widia India, but its plans are stuck because their existing joint venture partners in Birla Kennametal, controlled by Mr Yash Birla, have raised objection."

The case has triggered the provisions of the Press Note 18 and has been hanging fire for the past five months. The Government has now called both the parties for a discussion and is hopeful that some solution is hammered out so that the interests of both the parties are protected," he said.

It may be mentioned that during the last five years, the provisions laid down in the Press Note 18 regarding approval of foreign investment proposals has generated a lot of discussions and debates; but every time, finally it was decided that the provisions were required to do a balancing act between the priorities of domestic and foreign investors.

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