Govt proposes relaxing FDI rules governing JVs

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 joint venture partner.

The FDI rules proposed to be relaxed was not applicable to the joint ventures entered after January 12, 2005. Thus, the changes would help foreign investors who entered JVs after this date.

Suggesting abolition of this rule, the Department of Industrial Policy and Promotion (DIPP) said in a discussion paper, "There is a need to examine whether such a conditionality continues to be relevant in the present day context." It has invited comments from the stakeholders till October 15.

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

"Competition today is not only between domestic players inter-se but also between international and domestic players. If an industry is discouraged from being set up in India, it could be set up in a neighbouring country, with whom a trade agreement exists or is being negotiated," it said.

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

The discussion paper also mooted that 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 Government should not be concerned about commercial issues between two business partners," it said.

The concept paper said that the existing measure discriminates between the foreign investors who had shown confidence in India, by investing 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, thereby restricting the inflow of foreign capital and technology into the country," it said.

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