Local JVs be damned, go ahead to FDI

Local JVs be damned, go ahead to FDI
Sunil Jain

New Delhi, Feb 1: In what is a sharp blow to local joint venture (JV) firms with foreign partners, the Core Group of the Foreign Investment Promotion Board (FIPB) has recommended that the government scrap the `no objection' clause contained in what is called Press Note 18, issued on December 14, 1998.

Briefly, this note applies to foreigners who have existing joint ventures in India. What the note says is that if the foreign firm wishes to set up a new unit in India (or a new JV, or even have a new technology transfer agreement), it will have to justify that this will not jeopardise its existing joint venture or technology/trademark partner.

What the Core Group has recommended is that this `no objection' not be required anymore, and that foreign firms be allowed to set up new ventures in India even if hurts their existing joint ventures.

Under the current law, for instance, if Suzuki Motor Corporation wishes to set up a unit to manufacture motorcycles in India, it will have to prove that this will not adversely affect its joint venture with the TVS Group. Typically, foreign firms who wish to set up similar ventures on their own, then, need to get a `no objection' certificate from their local Indian JV partner. And when they haven't got this, the foreign firms have not been allowed to go ahead.

Nippon Cables of Japan, for instance, has a joint venture called Madhusudan Nippon to produce control cables for automobiles. Nippon, however, wanted to set up a new venture to produce control cables and window regulators -- when Madhusudan Nippon said that this would be against their interests, Nippon was asked not to produce that equipment being produced by Madhusudan Nippon.

The Core Group argued that in 3 cases -- Nippon, Concast AG of Switzerland and INA Bearings -- which it was considering, the foreign firm had set up the new subsidiary or the second joint venture well before Press Note 18 was issued. So, they argued, why was this Press Note being applied retrospectively? Nippon, for instance, had been given approval for its new joint venture on June 17, 1998 -- six months before Press Note 18 was issued.

The Core Group also said that Press Note 18 was being misused by some Indian promoters to retain their monopoly status. And that because of this, foreign investment was being curtailed.

The Core Group's recommendations are certain to raise a huge protest as Indian industry feels that foreign investors are being given unfair access to Indian markets while foreign markets themselves remain quite protected. In addition, several Indian firms have made huge investments in their joint ventures -- what happens to all this when the foreign firms decide to step out on their own?