Compulsory divestment condition on some foreign companies still in force

NEW DELHI: While the department of industrial policy and promotion still holds its ground on not deleting the compulsory divestment conditions fixed for certain foreign companies at the time of their entry, two more companies, US-based Muller Martini and Bonfiglioli Transmissions of Italy, have been recently permitted to retain 100% foreign equity in their Indian subsidiaries.

Over the past few months, several oil and gas companies like Caltex, Shell and Mobil have been told that they need not go in for compulsory divestment of their 26% stake in their Indian subsidiaries to Indian stake holders.

While the Foreign Investment Promotion Board (FIPB) holds that since 100% FDI is allowed under the automatic route in these sectors, they need not divest. DIPP feels it is against the foreign investment laws of the country to delete an entry condition.

According to sources, FIPB, earlier this month, cleared the two proposals overriding the reservations expressed by the DIPP.

FIPB has noted that the proposal was considered on the basis of the decision taken in the case of J P Morgan Securities, where it had decided to delete divestment conditions since a liberalised policy dispensation is available.

Muller Martini, the world’s largest manufacturer of post-press processing equipment, had represented to the FIPB that it had made several attempts to comply with the 26% divestment condition but has not been successful so far.

The company, which entered the Indian market during September 1997, was, in fact, earlier given an extension to disinvest till May 2003. The company’s initial plans were to sell its entire range of machinery in the Indian market.

Besides, it also installs, services, repairs and trains customers in the operations of its machinery.

The Bonfiglioli group, on the other hand, is one of the leading manufacturers of industrial power transmission products in Europe and has since set up a manufacturing base in Chennai.

The company, which entered India in preference to China, has said that its expansions were held back by shareholders at home as they felt they needed to have a wholly-owned subsidiary.

It had, therefore, requested a deletion of the entry clause of 26% divestment. The Italian company’s first such request was turned down in May 2003. It was taken up again in July 2003 and had since been kept in abeyance.