The Hindu Business Line : India Inc welcomes scrapping of Press Note 18

WHILE India Inc was near unanimous in welcoming the scrapping of the contentious Press Note 18 announced by the Prime Minister, Dr Manmohan Singh, on Wednesday morning, players were guarded in their response to the provisions of the new Press Note 1 (2005) announced by the Government later in the day.

Leading taxation expert and partner with BMR Associates Mr Mukesh Bhutani termed the revised norms as offering only "partial relief". "The move can at best be termed as a step forward, but it is rather insufficient in the present scenario," Mr Bhutani said.

Analysts, however, agreed that the revised guidelines under Press Note 1 (2005) remove the `arm-twisting' powers conferred to Indian partners by the Press Note 18 era, under which they could stymie a move by their foreign joint venture partners to set up a new business by refusing to grant the mandatory "no-objection certificate."

Reacting to the scrapping of Press Note 18, Mr Madhur Bajaj, Vice-Chairman, Bajaj Auto Ltd said, "It is a very balanced, welcome step and provides flexibility and freedom to all new joint ventures. At the same time, it also provides a rational framework for existing joint ventures."

Instances where Press Note 18 was put to use include the earlier joint venture between Chinese consumer electronics company TCL Electronics and Baron International. TCL had wanted to set up a 100-per cent subsidiary in India and its plans were delayed with Baron's refusal of granting the mandatory "no-objection" certificate. The Foreign Investment Promotion Board finally overruled the objections raised by Baron and granted TCL the permission to enter the Indian market.

Similarly, Walt Disney had to postpone its investment plans in the country, which included a television channel and entertainment parks, after it failed to get a `no objection' from its Indian partner, the K.K. Modi group.

"There is no direct impact on retail industry in India since no FDI is allowed in this sector at present. But on the whole, the scrapping of this note should benefit those sectors which depend largely on technology - pharmaceuticals, engineering goods and chemicals," Mr Arvind Singhal of KSA Technopak said.

A confectionery industry sector player said it made no sense to keep the Press Note 18 valid when the Indian economy has been liberalised in every other aspect. He said though such a move should be generally welcome, some Indian industrialists are expected to cry out against it.

However, some advocates of Press Note 18 maintained that due to these provisions, the interests of shareholders in joint ventures such as Hero Honda and Maruti Udyog have been safeguarded.

Meanwhile, the FICCI President, Mr Onkar S Kanwar, expressed "satisfaction" on the Prime Minister's announcement.

The Assocham President, Mr Mahendra K. Sanghi, complimented the Prime Minister for accepting the demand of industry for removal of stringent stipulations of the Press Note 18, which, according to him, are of no consequence in the globalising economy.

The Confederation of Indian Industry also welcomed the move.

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