Financial Daily from THE HINDU group of publications
Thursday, Jan 13, 2005
Financial Daily from THE HINDU group of publications Thursday, Jan 13, 2005 |
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Foreign Direct Investment Corporate - Alliances & Joint Ventures Government - Policy New guidelines to facilitate increased FDI thru jt ventures Our Bureau
New Delhi , Jan. 12 WITHIN a few hours of the Prime Minister, Dr Manmohan Singh, announcing the scrapping of the Press Note 18 provisions for all future joint ventures, the Government on Wednesday came out with a set of fresh guidelines for foreign collaborations. The new guidelines are expected to pave the way for increased inflow of foreign direct investment (FDI) through joint ventures and technological tie-ups between international companies and Indian partners. The revised guidelines issued under the new Press Note 1, which comes into effect immediately, stipulates that all new proposals for foreign investment or technical collaborations would henceforth be allowed under the automatic route, subject to sectoral policies regarding limits of equity holdings by the foreign partners and the strategic importance of the sector and the likes that are already in place. However, instead of the earlier requirement of obtaining a `no objection certificate' (NoC) from the Indian partner, the foreign investor holding a stake above 3 per cent in the existing joint venture would now need to seek permission from only the government. The guidelines issued here state that prior approval of the Government would be required only in cases where the foreign investor has an existing joint venture or technology transfer/trademark agreement in the same field. Earlier, the government's approval was required for ventures in related or allied fields also. Additionally, the onus of providing the requisite justification as also proof to the satisfaction of the government that the new proposal would or would not in any way jeopardise the interests of the existing joint venture or technological collaboration and trademark arrangement would lie equally on both the Indian and the foreign partners. Even in cases where the foreign investor has a joint venture in the same field, the new guidelines relax the requirements on the part of the foreign partner for seeking prior government approval. Though government approval would, in general, still be required for successful joint venture companies, it would not be required where the existing joint venture investment by either of the two parties is less than 3 per cent. In cases where the existing joint venture is defunct or sick, no permission would be required. The government's approval would also not be required for investments to be made by venture capital funds registered with the Security and Exchange Board of India. However, acknowledging that there are bound to be differences of opinion between the partners while pursuing commercial interests, the new guidelines have made the provision of inclusion of a `conflict of interest' clause in all new joint venture agreements that would create a process of reaching a decision through discussion among the partners in the event of one of them desiring to set up another joint venture or a wholly owned subsidiary in the same field of economic activity.
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