The Hindu : Front Page : Press Note 18 scrapped to increase FDI

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Thursday, Jan 13, 2005

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Front Page

Press Note 18 scrapped to increase FDI

By Our Special Correspondent

KOLKATA, JAN. 12. In a measure aimed at smoothening the inflow of foreign direct investment (FDI), the Prime Minister, Manmohan Singh, announced today the withdrawal of the restrictive provisions of Press Note 18 for all future joint ventures between Indian and foreign partners.

Press Note 18, issued in 1998, made it obligatory on the part of foreign companies having joint ventures in India to obtain government approval before setting up new ventures in the same or allied fields. This stipulation was seen as restrictive by foreign investors. They said they were tied to their existing Indian partners, irrespective of the status of the existing venture, and were unable to venture out on their own or with new partners. But sections of Indian industry wanted the protection under Press Note 18 to continue as some foreign partners had the tendency to "jump out" and align with rival parties or set up independent ventures.

"An anachronism"

Announcing the scrapping of the provision at the Partnership Summit of the Confederation of Indian Industry (CII) here, Dr. Singh said this was a regulatory provision causing discomfort to investors. Amid tales of success of Indian firms at the global market place and the optimism of Indian industry as revealed at the recent meeting of the National Manufacturing Competitive Council, measures such as Press Note 18 seemed like an anachronism, having outlived their purpose, he said.

Elaborating on the Prime Minister's decision, the Commerce and Industry Minister, Kamal Nath, later told the meeting that Press Note 18 would not apply to any joint venture entered into after today, and that future ventures should include a conflict of interest clause in their agreements to protect the interests of the parties concerned. The Minister explained that even among the old or existing ventures, three categories would be excluded from the purview of Press Note 18. These include sick or defunct joint ventures, collaborations in which either partner had less than three per cent stake and venture capital funds registered with the Securities and Exchange Board of India.

Another modification is that even among the existing joint ventures that do not come under the excluded categories, Press Note 18 will apply only for the same field and not similar or allied fields. Secondly, the onus to prove whether the new joint venture will or will not adversely affect the existing joint venture will be equally on the foreign and domestic partners, unlike now when it is only on the foreign partner.

Fresh Note issued

Consequently, Press Note 18 so far prohibited access to the automatic approval route for foreign ventures. The Government has also issued a fresh Press Note 1 (2005 series) to replace the scrapped Press Note 18.

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