Walt Disney's proposal to set up a wholly owned subsidiary in India has once again propped up the contentious issue of whether or not an existing Indian partner of a foreign company should have the right to give the go-ahead to a new independent project by the foreign firm.
Walt Disney, through the 100 per cent arm, plans to operating its pay channel (The Walt Disney Channel) and create a platform for its other businesses such as theme and amusement parks.
As per a policy guideline (popularly known as Press Note 18), a foreign firm is not permitted to set up a separate subsidiary if it has an existing joint venture in the same line of business. In case the joint venture has been terminated, there has to be a cooling-off period of at least six months.
On previous occasions, the Indian joint venture partners have been asked to give no-objection certificates (NoC) when their foreign collaborators wanted to set up another subsidiary.
For instance, when FTR Holdings (a Phillip Morris subsidiary) wanted to set up a 100 per cent arm for research and leaf development, the government asked it to get the approval of the KK Modi group with which the US firm has a cigarette manufacturing venture.
In Disney's case, too, the K K Modi group has an existing joint venture. Modi's son, Lalit Modi, who is the vice-chairman of WD India, has objected to Walt Disney's proposal. He has brought to the notice of the government that like in previous cases, the Modis should be asked to give their NoC.
Government sources said today that the information and broadcasting ministry is yet to clear the case. However, it is also yet to be decided whether the case attracts the provisions of Press Note 18 or not.
"It does, as it seems," said a government official. But he added that Walt Disney has claimed that the Disney group has signed a non-binding memorandum of understanding with the Modi group.
Since the project was not feasible, it has decided not to proceed with the project and that neither party will have any claims against the others if the project did not proceed.
Walt Disney also said that it intends to launch The Walt Disney Channel as a pay channel. So the proposed activity does not clash with the existing joint venture with the Modis which has a licence to distribute Disney programmes on free-to-air TV until late 2002.
It is learnt that a few members in the Foreign Investment Promotion Board hold the view that the "NoC factor" should not be triggered since the proposed activities are different and Walt Disney may bring in more investments to the country in the future.
On the other hand, skeptics have opined that Walt Disney has proposed to make investments up to $30 million over five years.
"Up to $30 million could mean anything. Besides, it also means that the company hardly has any plans to set up amusement parks, resorts, studio entertainment etc -- indications to its long-term interests in India," they said.
Walt Disney's businesses do not add any value in terms of technology for which foreign direct investment gates are actually being opened up. The fate of Walt Disney's proposal will, therefore, be a statement of the government's policy, they added.
