Rajat Guha NEW DELHI

THE government is planning to scrap Press Note 1, which bars a foreign company with a joint venture in India from setting up its own operations in the same line of business without the Indian ally’s consent.
   The department of industrial policy & promotion (DIPP) is of the view that PN-1 is a deterrent to foreign investments due to which companies have started bypassing India to invest in China. Many companies like Danone have been facing the heat in India due to the PN-1 stipulation.
   Scrapping PN-1 would allow foreign companies to invest without getting a no-objection certificate (NOC) from their joint venture partners. The NOC condition is applicable to JVs set up before January 2005, and Foreign Investment Promotion Board (FIPB) nod is mandatory in such cases.
   Officials think that getting the FIPB nod and NOC from Indian partners is time-consuming and a dampener for multinational companies keen to invest in India. The move has support from pro-liberalisation wings of the government such as the finance ministry. In many cases, Indian promoters involved in joint ventures also block their foreign partners on frivolous grounds, it is seen.
   Also, now that attracting FDI is getting tougher by the day due to signs of a global economic slowdown, the department wants to send positive signals to global investors. “If the government scraps the requirement, the move would definitely go a long way in attracting FDI. It would also send a positive signal to foreign investors,” a DIPP official said.
   The department is planning to write to the finance ministry, expressing support for doing away with the regulation. Last year, the finance ministry asked DIPP to review the regulation. But DIPP may insert a clause, which would make foreign investors follow a mandatory lock-in before launching new ventures in the country.

COMPARE NOTES

The case for Indian firms
Shields local firms by mandating that foreign allies must get their nod before investing in same sector Enables local companies to get the technology and financial resources to expand operations
The case for foreign firms
Scrapping PN-1 would allow foreign firms to invest without getting NOC from their JV partners Getting NOC is a dampener for MNCs; their plans are often jettisoned on frivolous grounds

Note of constant bickering


   BESIDES being a deterrent, Press Note 1 has also been a bone of contention between foreign and Indian partners. For instance, France’s Group Danone and the Wadia Group have been locked in battle for long. The French company has been trying to get an NOC from the Wadias to make fresh investments in India.
   Earlier, the VK Modi Group too was locked in a dispute with its US partner Guardian over Press Note 1. The American company wanted to set up a subsidiary and the Modis opposed it as it could affect the business Gujarat Guardian, in which they own 21%. The FIPB cleared the US company’s proposal without an NoC from the Modis, but the proposal is stuck in litigation.
   Press Note 1 was formulated in 2005 to dilute an earlier government provision called Press Note 18, which stipulated that the foreign company had to furnish an NoC from an Indian partner if it planned to set up a wholly-owned subsidiary in an allied field. PN-1 has restricted the need for an NoC to the same activity only. In addition, joint ventures formed after January 2005 are not subject to Press Note 1.

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