Govt set to liberalise FDI policy on JVs, tech tie-ups

The government is likely to liberalise the foreign direct investment (FDI) norms for entry of foreign companies that have existing joint ventures or technical collaborations in India. The new policy, to be implemented from April 1, may drop the requirement of no-objection certificate (NOC) that foreign firms need to set up a separate entity.

The revised version of the FDI policy, which will be released on March 31, is expected to do away with Press Note 1, 2005, to bring in the above-mentioned change.

A committee of secretaries under Cabinet Secretary KM Chandrasekhar is likely to clear the move soon.

The main rationale behind the move to liberalise the policy is to prevent “monopolistic tendencies of certain domestic as well as foreign companies”. Besides, India is now aggressively engaged in signing bilateral trade agreements with several countries, which may induce the foreign companies to set up shop in one of the partner countries and start exporting the commodity into India duty-free under a particular free trade agreement (FTA), a senior government official said.

The official also said that in a number of cases, the foreign partners had faced big problems in obtaining the NOC from their Indian counterparts, giving rise to a large number of corporate disputes.

“There have been cases when the Indian companies have asked for bribe or taken them to court citing complex rules, leading to wastage of time and resources,” the official said.

Under the current norms, both parties need to furnish the NOC to state that the new venture or tie-up would not jeopardise the existing joint venture or technology transfer or trademark tie-up.

The Department of Industrial Policy and Promotion (Dipp) under the Ministry of Commerce and Industry had floated a discussion paper on this issue in September last year.

There, it had argued that since India is now signing a series of FTAs and other comprehensive agreements with its trading partners, the foreign firms operating here in partnership with any Indian entity might find it more feasible to set up shops in partner countries in the event they are not able to obtain the mandated NOC from their domestic partners. Besides, this might also result in rising number of dumping cases in the country.

In the discussion paper, the Dipp had also highlighted the point that on Tuesday Indian industry is far more robust than what it was in 1990s, when there was a need for some amount of government regulation to protect the industry. Hence, too much government intervention in commercial issues might become a setback for competition.

DIPP had also sought stakeholders’ views on the question of whether the four digit-National Industrial Classification (NIC) could be expanded if the new venture was “demonstrably different from the activity of the existing venture or tie-up, even though it has the same NIC field”. The code forms the basis for determining if the field is the same.

Sectors that are exempt from the provisions of Press Note 1 are information technology and mining.