Date:07/10/2004 URL: http://www.thehindubusinessline.com/2004/10/07/stories/2004100701570400.htm

Back FICCI urges PM for continuation of Press Note 18

Our Bureau

New Delhi , Oct. 6

THE Federation of Indian Chambers of Commerce and Industry (FICCI) has urged the Prime Minister, Dr Manmohan Singh, for continuation of Press Note 18 stating that such a provision is necessary for Indian investments to be safe.

Press Note 18 issued by the Ministry of Industry in 1998 applies to joint venture companies with foreign partners. This rule prevents foreign partners from setting up wholly owned companies in the country to be engaged in the same line of business where the joint venture company operates without a prior no objection certificate (NOC) from the Indian partner.

In a letter to the Prime Minister, the FICCI President, Mr Y.K. Modi, said that in developed countries, joint venture companies do have a conflict of interest clause that prevents any sudden reversal of long-term business contracts, which often include a three-year cooling-off period.

In his letter, Mr Modi said: "In the absence of such a conflict of interest clause in most Indian joint venture, it is necessary that application of Press Note 18 continues, specially for agreements entered prior to 1998. This is vital to uphold commercial fairness, shareholders' and financial institutions interests and the Indian entrepreneur's future."

The FICCI President, however, endorsed the stand taken by the Foreign Investment Promotion Board (FIPB), stating that it has taken a balanced approach in many cases involving the provisions of the restrictive regulation.

"FIPB has been taking a liberal view in allowing 100 per cent wholly owned companies in case of new applications by foreign companies where commercial relations with Indian corporate bodies have ceased to exist over a reasonable period of time. Similar reasonable views can be incorporated in the guiding blueprint for application of Press Note 18."

According to FICCI, in most cases of joint ventures, the foreign partner usually imposes a lot of restrictive provisions on the Indian partner that eventually affects the profitability and future growth of these companies.

These include forced sourcing of components from supplier selected by the foreign partner, restriction on exports under Indian brand names, rights to patents and research and development activities of the Indian joint venture companies.