Govt moots relaxation in FDI rules on JVs

The government today proposed a major relaxation in foreign direct investment (FDI) rules to allow foreign firms to bring in new technology and set up new independent business without clearance from their existing local partners.

The move is aimed at attracting FDI into the country, which has recently slowed down.

Under the present dispensation, a foreign player who had set up a joint venture (JV) in India before January 12, 2005 but now wants to open a new business independent of the existing domestic partner faces barriers.

The foreign player not only needs the government approval but also a 'no-objection certificate' from the domestic partner to the effect that the new forays would not "jeopardise" interest of the existing JV.

"The proposal is a welcome move it will attract more and more FDI and will also bring in high quality products for Indian consumers at competitive price," Naresh Makhijani, executive director, KPMG said.

The FDI rules proposed to be relaxed were not applicable to the joint ventures entered after January 12, 2005. Thus, the changes would help foreign investors who entered JVs before this date.

Suggesting abolition of this rule, the Department of Industrial Policy and Promotion (DIPP) said in a discussion paper, "There is a need to examine whether such a conditionality continues to be relevant in the present day context."

Alternatively, it has suggested that the stipulation  of no-objection from the domestic partner should not be applicable to JVs which are 10-year old.

It has invited comments from the stakeholders till October 15.

The move follows representations from foreign investors pointing out that their domestic partners were using a string of press notes since 1998 "as a means of extracting unreasonable prices/commercial advantage. These press notes had become a stumbling block for further FDI coming into the country".

The DIPP, the nodal agency for FDI related matters, said India has entered into a number of free trade agreements and several others are under negotiations.

"In such a scenario if an industry (FDI) is discouraged from being set up in India, it could be set up in a neighbouring country with whom a trade agreement exists  or is being negotiated," it said.

India received $25.8 billion FDI in 2009-10.

After a pick up in the first two months of the current fiscal, the inflows have slowed down for June and July.