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| Investment norms for foreign firms with India ties may ease |
| BS Reporter / New Delhi Sep 11, 2010, 00:50 IST |
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To further simplify the foreign investment regime, the Department of Industrial Policy and Promotion proposes to ease investment norms for foreign companies that have existing joint ventures or technical collaborations in India.
At present, for ventures set up before January 12, 2005, a foreign player that wants to open a new line of business must first obtain a no-objection certificate (NOC) from its Indian partner confirming that the new venture would not jeopardise the existing one. It then needs government approval for the new venture.
In a discussion paper issued today, the government has sought feedback on whether the rules should be changed in a way that foreign firms seeking independent entry where their existing joint ventures or tie-ups have been place for more than, say, 10 years, still need an NOC.
| DIPP’S VIEWS |
- Indian industry is today far more robust than when the NOC regime was first launched
- Jeopardy is no longer relevant, as Indian partners have recouped their investments
- ‘Same field’ norms defined by National Industrial Classification need to be reviewed
- Govt cannot provide Indian industry lifelong protection, but must create a level playing field
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Besides, it wants to review the norms related to the definition of “same field” as defined by the National Industrial Classification (NIC). So, if the new venture is in a “demonstrably different” activity from the existing venture, the rules might be relaxed.
The paper pointed out that NIC 1987 treated the manufacture of car seat belts and steering wheels as the same field of business, but in reality a venture produce one might not jeopardise an entity manufacturing the other.
“With more than five years or 10 years having elapsed, it can be argued that the issue of jeopardy is no longer relevant, as the Indian partners could have recovered their investments substantially during this period of time,” the discussion paper said.
It argues said that Indian industry is now far more robust and resilient than in 1998, when there was need for some amount of government regulation to protect it.
The department has also said in its concept note, for which feedback has been sought until October 15, that India is now gradually embracing globalisation through bilateral and multilateral trade and investment agreements. As a result, there is a need to provide a level playing field to foreign players, the nine-page document said.
“Today, our industry is extremely healthy and has a competitive edge. So, we do not see any need to protect it anymore. The government cannot provide industry lifelong protection,” said an industry department official.
The department also cited the high number of anti-dumping cases to argue that sufficient protection was available to local industry.
Besides, the document pointed out that India was entering into several bilateral and multilateral trade and investment agreements and it needed to provide foreign players a level playing field. By erecting barriers, it also runs the risk of losing investments to neighbouring countries, the official said.
“There is a strong case for reviewing the norms, as they have become obsolete under the present circumstances. Indian industry is quite strong now and does not require hand-holding by the government,” said Akash Gupta, executive director, PricewaterhouseCoopers.
“Obtaining an NOC leads to a waste of time and resources, and a lot of bureaucracy is involved. Doing away with it would definitely give out positive signals to foreign investors,” said Puneet Shah, tax partner, KPMG.
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