Business Today

Govt pitches for relaxed FDI rules in JVs

Ministry of Commerce makes case for allowing foreign firms in a joint venture to invest in India irrespective of the impact on the Indian partner.

twitter-logoPTI | September 10, 2010 | Updated 17:46 IST

Proposing a major relaxation in a 12-year foreign direct investment (FDI) rule, the Ministry of Commerce on Friday made a case for allowing foreign investors to bring in fresh money and technology to India, irrespective of the impact on local partners in any existing joint venture (JV).

Under the present dispensation, a foreign player, who entered India before January 12, 2005, has to take government approval and "demonstrate" that fresh investment in the same field would not affect interest of his domestic JV partner.

The FDI rules proposed to be relaxed were not applicable to JVs entered after January 12. The changes would, thus, benefit investors who entered JVs after the date.

Suggesting abolition of the rule, the Department of Industrial Policy and Promotion (DIPP) said in a discussion paper: "There is a need to examine whether such a condition continues to be relevant in the present day context or not." It has invited comments from stakeholders till October 15 on the same.

DIPP said in an era of globalisation, where a number of free trade agreements are in place, the domestic industry has to become more competitive.

"Competition today is not only between domestic players, but also international and domestic players."

If an industry is discouraged from being set up in India, it could turn to a neighbour, turning our own market into a loss," it said.

In the last one year, India has entered market opening trade pacts with ASEAN and South Korea. Besdies, it is also a leading member of a SAARC pact, comprising nations of the sub-continent.

The discussion paper also mooted whether the government policy should intervene in the commercial sphere and override contractual terms agreed to between the parties, given the need to promote healthy competition and ensure sustained long-term economic growth.

"It can be argued that the government should not be concerned about commercial issues between any two business partners," it said.

The concept paper added: "The existing measure discriminates between foreign investors who had shown confidence in India, by invested in the country prior to 2005, and those who invested later."

"The condition may be restricting a number of investors, who may not be able to reach agreement with their Indian partners on their future investment plans. This will restrict the inflow of foreign capital and technology into the country," it said.

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