In an apparent softening of stand, the Federation of Indian Chambers of Commerce and Industry on Thursday said if the government was amending the controversial Press Note 18, it should also ensure that the interests of the foreign collaborator and the local partner are protected.
Ficci was instrumental in getting the government to insert a clause in foreign investment joint ventures, whereby, a company which had or was having an existing (technical or financial) joint venture in the country, would require a no-objection certificate from the local partner, if it wanted to set up a different venture in the country.
"While we do not believe that the policy guideline is a major impediment to foreign direct investment inflows, the concerns of the foreign investor should be addressed if an amendment is made to the policy. But we believe that there are only a handful of cases where the Press Note 18 has been misused by the Indian partner," said Y K Modi, senior vice-president, Ficci, at a press briefing related to a survey conducted by the chamber on foreign companies operating in India.
Modi said he was aware that the government was considering a proposal to incorporate a cooling-off period clause in the amended Press Note 18, in order to provide more comfort to the foreign investor, and to rein in domestic companies who might wish to misuse the provisions.
The chamber had played a major role in 1998 to get the government to insert the Press Note 18 clause for all prevailing joint ventures.
Sources in the government said they have sought Ficci's views on the issue and a decision had to be taken in two months' time.
But Modi said he was not aware if the government and Ficci were discussing the issue at all. "We will give our views if required," he said.
Over the past five years, the provisions of Press Note 18, originally proposed to protect Indian corporates from being gobbled up by their financially more powerful foreign partners, have been used by Indian companies to arm-twist the foreign company.
Several cases have come to light wherein the foreign company has either been forced to exit after paying a heavy premium on the shares or its further entry has been blocked. There are also several cases, where the partners are engaged in legal wrangles.
Modi said that ground level problems were larger impediments to FDI inflows, rather than issues like Press Note 18.
He discounted the recent United States Trade Representative report which mentioned press note 18 as a major roadblock to investments into India.
Other senior executives in the chamber, however, said that the business environment has changed drastically in the five years since the policy was announced.
Today, foreign direct investment in almost all sectors have been put under the automatic route and sectoral caps have been removed. Provisions of Press Note 18 did not seem valid in the present circumstances.