INDIA BUSINESS WORLD - OCTOBER 2006
THE MONTH THAT WAS...

GUARDIAN WINS, CHIDAMBARAM CLEARS 100% ARM

  THE air has finally been cleared over Guardian's proposal to set up a fully-owned venture in India. Finance minister P Chidambaram is understood to have given the final goahead to the company to set up a subsidiary without the requisite no objection certificate from its JV partner Modi Rubber (MRL). While the two still battle it out in court over the shareholders agreement, which prevents Guardian from setting up a 100% subsidiary without MRL's permission, the government seems to have taken the decision following strong intervention by the US government on behalf of Guardian. The US treasury department had recently written to the finance ministry in this regard.

   According to the US treasury department letter, the JV company — Gujarat Guardian (GGL) — was actually being ‘harmed' due to Guardian's inability to expand through its new subsidiary. The new subsidiary would help GGL to cut down logistics-related costs giving it a cost advantage. The letter also said GGL was losing out to Japanese and French companies in India due to this. It further added that successful resolution of this issue would send a strong signal to American investors that India is committed to protecting foreign investment.

   The decision is likely to send positive vibes from India at the CEO Forum to be held in New York later on Wednesday. The letter refers to this forum and states the decision would be timely as the US and India review the progress on furthering the bilateral economic relationship.

   The proposal, which had come before the FIPB almost two months ago, had been referred to a core group that had supported the initial view of the department of industrial policy and promotion which was to allow the company to set up shop as it did not see how the new venture could jeopardise the commercial interests of the existing JV.