Despite the introduction of a new Press Note 1 to replace the Press Note 18 of 1998, new norms are not enforceable for new ventures under the automatic route in the absence of a corresponding amendment to the Foreign Exchange Management Act.
Press Note 1 deals with the guidelines pertaining to approval of foreign/ technical collaborations under the automatic route with previous ventures or tie-ups. Fema stipulates that the automatic route does not apply in the case of previous ventures or tie-ups in India.
"Since this provision of Fema has not been changed by the Reserve Bank of India to correspond to the Press Note 1, stipulations of the note cannot be enforced till notified by the RBI," Vivek Mehra, executive director, Pricewaterhouse Coopers, told Business Standard.
The note lays down that new proposals for foreign investment/technical collaboration will be allowed under the automatic route, subject to sectoral policies.
The government's approval will be required only in cases where the foreign investor has an existing joint venture or a technology transfer/trademark agreement in the "same" field.
Tax experts also say the use of the word "existing" is ambiguous since it does not specify what constitutes an existing venture. "The government needs to clarify that the 'existing' refers to 'existing ventures as on the date of the Press Note," Mehra said.
According to Mehra, the government should also restrict the onus to provide requisite justification or proof to the government that the new proposal will not jeopardise interests of the existing joint venture or technology/trademark partner to only the Indian partner to make it more foreign investor-friendly.