Friday, June 29, 2007

Foreign Direct Investment in India: Issues with Press Note 1

Press Note 1 of 2005 issued by the Ministry of Commerce & Industry, Government of India stipulates that where a foreign entity has an existing joint venture or technology agreement (being that which is in existence on January 12, 2005) in the same field, any further investment into India by such foreign entity cannot be made under the automatic route, and that the foreign partner would have to obtain approval of the Foreign Investment Promotion Board (FIPB). In addition, although Press Note 1 itself does not explicitly state so, the FIPB’s practice is to consider such an application only when it is accompanied by a ‘no-objection’ in writing from the previous domestic joint venture partner.

This results in a favourable situation to domestic businesses whereby, following the break-up of a joint venture, the domestic partner is free to carry on the same business individually, but the foreign partner cannot do so unless it obtains the concurrence of the domestic partner.

An article by D. Murali and C. Ramesh that has appeared in today’s Hindu Business Line carries my views where I have argued that that Press Note 1 ought to be repealed, and set forth reasons for the same.
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