Welcome pragmatism

The Foreign Investment Promotion Board's (FIPB) decision to allow Chinese consumer electronics firm TCL Electronics to set up a wholly-owned subsidiary despite the objections raised by its local partner Baron International, is a pragmatic one.

For, while some degree of protection to local firms which feel their foreign partners dump them as soon as they've understood India's market dynamics, may possibly still be justifiable, the joint venture, in this instance, was not even functioning for close to two years.

In fact, it's not in just the TCL case that the FIPB is getting more liberal in interpreting Press Note 18 "" a notification that demands a no-objection certificate from local companies when their foreign partners want to set up a independent related business in the country.

Saudi Arabia's Amiantit was allowed to transfer technology to another firm despite objections from Graphite India, and Kennametal was allowed to increase its stake in Widia India despite objections from the Yash Birla group.

Indeed, while there has been no stated change in Press Note 18, it appears the policy now is that a foreigner who has an existing joint venture cannot apply for setting up a new venture through the automatic route. He has to come in through the FIPB, which then examines the merits of the case.

The main reason for this shift in the FIPB stance, ironically, is the change in the manner in which foreigners perceive local Indian partners.

While local firms were viewed primarily as a vehicle to enter the previously restricted market, today's joint ventures are taking place between equals, with the Indian firms also bringing a lot of expertise to the table.

In the automobile sector, for instance, that saw bitter fights between Indian and foreign partners in the past, Indian firms are today seen as potential world beaters, not just in terms of costs, but more so in terms of design capability "" both the Indica and the Scorpio have been designed at a fraction of the cost that would be incurred if they had been developed in overseas locations.

In the pharmaceutical sector, similarly, foreign firms are keenly looking for Indian partners for both joint research as well as for clinical tests.

Two things have happened as a result of this. One, the better Indian firms continue to get partners, even if their original ones walk out.

And few do, with their local partners bringing a lot more to the table "" today, for instance, a TVS has conclusively proved it doesn't really need a Suzuki to help it design or sell motorcycles.

Two, few lobbyists, such as FICCI or CII, want to take up cudgels on this matter when it is obvious that the foreign partners want to dump only the weaker Indian firms.

But, even assuming there are political advantages of maintaining a certain degree of ambiguity over Press Note 18 in an election year, and at a time when developed countries are becoming increasingly protectionist, the problem with the approach is that few in the outside world know about the relaxations in Press Note 18.

While a nuanced foreign policy may still be perceived to be a great thing, few can say that of a foreign investment policy "" all it does is to confuse investors, at a time when the rest of the world is busy wooing them.