The Hindu Business Line : Tech-equity swap for foreign cos proposed

Foreign companies may subscribe to the equity capital in a joint venture Indian company without any cash contribution, but on the basis of the valuation of the technology they will provide.

NEW DELHI, March 9

AFTER allowing higher levels of foreign equity participation in a number of sectors, the Government is now planning to allow infusion of technology by a foreign partner in a joint venture company as equity participation.

However, the percentage of equity to be swapped in exchange of technology will have to be within the specified sectoral limit for foreign direct investment (FDI).

Till now, foreign equity participation against consideration other than cash was not allowed by the Government.

Though it is permitted against royalty or lumpsum payment, as are foreign currency loans, it involves restrictions on outflow of cash but no capital account transaction.

This change will mean that a foreign company will now be able to subscribe to the equity capital in a joint venture (JV) Indian company without making any cash contribution, directly or indirectly, but on the basis of the valuation of the technology that it will provide to the JV company and will fall under the category of capital account transaction, Government sources said.

However, the valuation of the technology proposed to be swapped with equity stake will have to be done by the Indian partner and not the foreign collaborator, they added.

Besides, this valuation will again have to be certified by the administrative Ministry concerned for the industry segment in which the JV company proposes to operate.

After the Indian partners and the Ministry concerned agree on a common valuation of the technology involved, normal regulatory clearances will be required.

Depending on which sector the company belongs to, it may come either under the automatic approval mechanism or the FIPB route, the sources said.

A scrutiny of the FDI proposals processed by the Government during the past two years reveals that close to 40 proposals requesting foreign equity participation against technological collaborations have been rejected.

One of the major sufferers was Daewoo Motors, which has gone sick and whose plant is up for sale with no takers.

There are several other examples where genuine business interests have been affected because of this practice.

A proposal for a comprehensive formulation of policy and objective criteria for valuation of technology will be placed before the Core Group of the FIPB headed by the Finance Secretary and including the Secretaries of the Ministry of Industry, Commerce and External Affairs at the behest of the Department of Economic Affairs (DEA), according to the sources.

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