Dabhol litigation creating negative impact: Mulford

Continued litigation over the Dabhol Power Company (DPC) was creating a negative atmosphere for India, said United States ambassador to India David Mulford here on Thursday.

"There is no excuse for these things to drag on," he said. He noted that if these kind of situations were allowed to linger, foreign investors would get the idea that once in India it would not be an easy matter to exit, should the circumstances so warrant.

"There is an initiative from the Indian government to meet their obligations and this could communicate a positive signal and help the flow of foreign direct investment," he said.

Mulford added that the government should scrap all limits on foreign investments in order to "foster faster growth in industry and keep the momentum going." Meanwhile, the domestic and offshore lenders of the beleaguered DPC will meet for a second round of discussions tomorrow in Singapore.

"We had the first round of discussions today and will continue tomorrow," said sources in the lenders consortium from Singapore. They, however, refused to divulge further details. Sources close to the development said both sides are trying hard to reach a solution.

The high level domestic lenders consortium is led by IDBI chairman M Damodaran, State Bank managing director Chandan Bhattacharya, ICICI Bank deputy managing director Kalpana Morparia and IDBI executive director A K Doda.

The IDBI led consortium is keen on forming a special purpose vehicle to take over the debt of the company and is seeking a government guarantee for this.

The latest round of negotiations to find a solution to the Dabhol problem comes in the face of the two US based companies GE and Bechtel buying the bankrupt Enron Corp's 65 per cent stake in DPC and hiking it to 85 per cent in a complex three tiered arrangement. The shares, however, are pledged with the lenders consortium led by IDBI.

Mulford is on a tour of India to gain first hand knowledge of the country.

The ambassador has also been meeting officials of the Reserve Bank of India, the Securities and Exchange Board of India and other regulatory authorities with the express purpose of "listening and learning about Indian business and financial markets."

"I am trying to get, as quickly as possible, a comprehensive knowledge of the economy," he said. It was a country-wide exercise, he said.

On the outsourcing issue and the comments made by John Kerry -- who is running against George Bush in the US elections -- that if he came to power he would stop outsourcing of jobs to other countries, Mulford said that if Kerry went on in this way, he would get too deep into the issue and if he won the elections he might find it difficult to keep his promise.