The Prime Minister's Office (PMO) is said to have cleared the scrapping of Press Note 18, an outdated provision which prevented foreign companies already in an Indian joint venture from getting into other 100% owned ventures without the domestic partner's permission. In most cases, this gave the domestic company a veto against any separate investment by the foreign partner.
This peculiar entry barrier had created a stalemate of sorts, whereby the domestic partner failed to bring in its share of funds for necessary expansion and ended up preventing the foreign partner from going into other 100% owned ventures. Many proposals for new investments by foreign companies were rejected, simply because the domestic partner in an existing venture refused to give a no objection certificate (NOC).
In many cases, the domestic partner extracted a handsome price for either providing the NOC or selling out its stake to the foreign partner at a huge premium.
In recent times, the FIPB had also ruled against some domestic companies trying to veto fresh investments by their foreign partners. The government has finally gathered the necessary will to scrap Press Note 18, possibly because such a provision eventually may not stand the scrutiny of market access norms under the WTO regime.
In recent times many investment proposals by foreign companies have been rejected due to objections of domestic partners. More recently, a proposal from TCL, a Chinese major, lay pending for over a year because Baron (its failed joint venture) did not want it to come through. Even Walt Disney did the rounds of the government for close to two years as Modi Entertainment opposed its entry. Only a settlement between the two allowed Disney an entry on its own.
The finance ministry had last year recommended the deletion of the policy because it was seen as inherently flawed. It had suggested that India was sending out wrong signals by keeping such a retrograde policy alive. It is now felt that that Indian companies have come into their own and can compete with 100%-owned MNCs on any turf.
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