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India Inc gave its thumbs up to the Government's move to ease foreign direct investment (FDI) rules, allowing foreign companies to expand operations in India without a no-objection certificate from their local partner, among other things.
This has been a long standing demand of foreign firms. They have complained that the local partners had misused the old rule and tried to extract undue price or commercial advantage for a no-objection certificate.
Groupe Danone and the Wadia Group were engaged in a four-year fight before the French company exited their biscuit making joint venture with Britannia Industries. Tata Motors and Ashok Leyland also had a tiff over a joint venture involving construction equipment and tractor manufacturer John Deere.
“Times have changed and we certainly need a more liberal FDI policy framework to attract larger amounts of foreign investments. This is especially needed in the context of declining FDI flows in the past few months. FICCI is examining the implications of this announcement, particularly in the context of global competitiveness and technological development of Indian industry,” said Mr Rajiv Kumar, Director General, Federation of Indian Chambers of Commerce and Industry.
The Confederation of Indian Industry (CII) Director-General, Mr Chandrajit Banerjee, said that the industry has now reached a stage of commercial and economic maturity where it can negotiate joint venture contracts with its foreign counterparts on an equal footing, without compromising its interests in any manner.
“CII hopes that this measure would encourage foreign companies to look at new opportunities in India,” he said.
Industry analysts were also happy to hear the news of the change in the FDI rules.
“This is a positive development. The clause was already obsolete as it was not applicable to new ventures formed after January 2005. Indian companies may be worried, but competition is more important for a free economy. The key is to reduce restrictions through a more liberalised FDI regime,” said KPMG's ED, Mr Punit Shah.
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