Local firms seldom lay NOC trap for MNCs

NEW DELHI: It is widely believed that Press Note 18 norms are restrictive for multinational companies wanting to invest in the country. In reality, however, Press Note 18 has not come in the way of new investments by MNCs.

Press Note 18 rules say that a foreign company already in an Indian joint venture needs to first get a no-objection certificate from the Indian partner before setting up another Indian subsidiary. The problem is that the Indian partner usually plays hard ball to issue the NOC.

An ET analysis of the 57-odd cases that have attracted Press Note 18 norms over the past one year reveals that 50 of them have been cleared by the Foreign Investment Promotion Board (FIPB) — thereby not jeopardising either their business plans or foreign direct investments in the country.

Of all the cases, only two did not get no-objection certificates from their Indian partners. The investment plan of one of the two was cleared despite the fact that the Indian partner refused to issue the NOC. Another couple are still pending clearance because of various reasons, which include ongoing court battles.

The two companies which did not get the mandatory no-objection certificate from their Indian partners are Chinese consumer electronics manufacturer TCL and German pharma major Draeger Medical.

TCL had fought a long drawn out battle against its Indian partner Baron, run by Kabir Mulchandani, but the case was eventually cleared by FIPB despite the fact that Baron did not give the NOC.

Draeger also did not receive the NOC from its domestic partner Usha group, but its case was apparently rejected by FIPB over misrepresentation of facts. Draeger had made no mention of its Indian partner in its application with the FIPB. It has since taken the Indian government to court.

Apart from Draeger, the FIPB also rejected the plea of an Indian subsidiary of the Usha group — RKKR Infotech — which had cited Press Note 18 rules to reject a proposal by Honeywell of the US to invest in the country, as they had a joint venture earlier. In this case, the MNC’s investment plan was protected by the FIPB.

Some of the important proposals attracting the Press Note 18 rules which got the FIPB nod over the last one year include those of Dentsu, Deutsche Asia Pacific Holdings, Saint Gobain Glass, Wartsila, Dell International, Sprint Corporation, Hitachi Construction Machinery and ORG-IMS Research.

On a macro level, the feeling that Press Note 18 is counterproductive can be questioned. The rule was introduced in 1998, but the largest chunk of foreign investments have flowed in only around ’01 and ’02.

Recently, tonnes of newsprint and government time have been consumed deliberating on the restrictive provisions of Press Note 18. The government, which was earlier talking about scrapping the rule altogether, is now talking about retaining Press Note 18 norms in a diluted form, so that the interests of both Indian and foreign companies can be protected. This comes after stiff opposition from the Left parties and industry chambers like FICCI and CII.

It has also been recommended that a sunset clause be introduced in the amended Note, allowing foreign companies to take the automatic route for clearance for new ventures two years after the annulment of an existing joint venture.

One of the major irritants of Press Note 18 for foreign companies is that at times, their Indian partners extract considerable gains when they ask for an NOC for setting up another venture or for selling out.

However, it has been also seen that sometimes, foreign companies want to set up a subsidiary in a segment where they already have a joint venture to maximise their own gains.