Indian Government Relaxes Foreign Direct Investment Rules.

One of the last remnants of government stranglehold on foreign direct investment (FDI) was removed on Thursday with the industry ministry doing away with the need for overseas investors to get a no-objection from their joint venture partner before venturing out on their own or roping in another local ally.

The same rules would also apply to technical collaborations in the same sphere of activity.

“There is a need to attract fresh investment and technology inflows into the country, as also to reduce the levels of state intervention in the commercial sphere… It is expected that this measure will promote the competitiveness of India as an investment destination and be instrumental in attracting higher levels of FDI and technology inflows into the country,” a statement from the industry department that administers the FDI regime said.

In December 1998, seven years after the liberalization process kicked off, the government through a press release (called Press Note 18) mandated that a foreign investor intending to set up a competing venture in the same or allied area needed to get a no-objection certificate from his Indian partner. This was necessitated due to protests from the Indian industry which feared that multinationals would take them over.

Subsequently, Indian promoters started using the tool to block the entry of partners once relations soured. As a result, several foreign players had trouble re-entering India.

So, in January 2005, Prime Minister Manmohan Singh decided to end the applicability of Press Note 18 on future cases.

The latest change means that all cases would be outside the ambit of Press Note 18.

But unlike the past when local players opposed green-channel entry for foreign investors, on Thursday, industry chambers, once strong advocates of the Press Note, supported the move.

“Industry has now reached a stage of commercial and economic maturity and can negotiate joint venture contracts with its foreign counterparts on an equal footing, without compromising its interests in any manner,” CII said in a statement.

PricewaterhouseCoopers executive director Akash Gupt said the control did not make sense any longer. “With free trade agreements becoming commonplace, foreign companies were setting up plants in countries with which India was signing agreements. So, the regime was discouraging domestic value addition and encouraging imports,” he added.

“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 context of global competitiveness and technological development of Indian industry,” Ficci director-general Rajiv Kumar said.

Source : thelinkpaper.ca