Press Note 18 may be spiked

FIPB core group meets next week

The government is considering a proposal to scrap Press Note 18 for all future joint ventures. The clause requires a foreign firm to procure a no-objection certificate (NoC) from its existing or erstwhile local partner to set up a new subsidiary in India.

The proposal will be considered by the core group of the Foreign Investment Promotion Board (FIPB) at its meeting early next week.

The group would also consider a proposal to do away with the disinvestment clause imposed on foreign firms as sector-specific requirements, officials told Business Standard.

The proposal also includes doing away the NoC clause for all past joint ventures where the collaboration has been terminated or is not functional.

There will also be a discussion on introducing a cooling-off period for existing joint ventures. Otherwise, the existing provisions of the NoC clause would continue to be binding on all past joint ventures, a senior official said.

The move, however, will not have any impact on some of the high-profile cases like BAT Plc-ITC and Philip Morris-KK Modi.

"We do not expect to arrive at a decision in the core group meeting. But we will discuss these proposals and try to arrive at a consensus. There is a feeling that the provision is stringent and is hindering expansion plans of many foreign companies," the official said.

The NoC clause is also being misused by financially weak local partners to arm-twist the foreign partner in shelling out a higher premium in case of a sellout.

The issue is being debated in the government over the past few months following hectic lobbying by foreign investors. But the domestic lobby has been urging the government to keep the clause intact on the ground that the purpose of introducing the provision, to protect Indian firms from their financially stronger foreign partners, will be defeated. But it seems that the domestic lobby has also softened its stance.

The government feels that protection should be provided only to local firms having a strong financial record and have the potential to grow into larger companies. Companies with poor financial records should not be encouraged, it is felt.