'New JVs should be exempt from Press Note 18 norms'

NEW DELHI: The Committee of Secretaries (CoS), deliberating on relaxing the restrictive provisions of Press Note 18 of 1998 has recommended that new joint ventures forged by foreign companies in India be exempt from complying with the regulation.

The CoS, which met earlier this month, also recommended that a sunset clause be introduced in the amended Note, allowing foreign companies to take the automatic route for clearance of new ventures two years after the annulment of an existing JV.

According to government sources, the committee, chaired by Cabinet secretary BK Chaturvedi, had favoured retaining Press Note 18 in a diluted form, such that interests of both domestic companies and foreign investors were protected.

The CoS has also recommended that the automatic route be opened for many more sectors. At present, the automatic route to forge multiple JVs in the same or allied areas is available only to companies in IT and mining.

The Planning Commission, which was asked to prepare a note for the consideration of the CoS, had favoured extending this route to companies in sectors such as pharmaceuticals, food processing and automobiles.

Sources also said that restrictions imposed by Press Note 18 on new ventures in allied businesses may be deleted. Thus, the provision may be made applicable only to new ventures — 100% subsidiaries or new JVs — that are to be set up in the same line of business as the existing JV.

The UPA government has said that it is committed to removing roadblocks that come in the way of free flow of FDI into the country. Press Note 18 was considered a major irritant by foreign investors.

The said note restricts the use of the automatic route for clearance of new ventures of foreign companies, where these entities have a tie-up, even if the JV is defunct. Foreign companies planning new ventures — either a 100% subsidiary or a new JV — were required to route their application through the Foreign Investment Promotion Board.

It was also mandatory for the foreign company to obtain a no-objection certificate from the existing Indian collaborator stating that the new venture would not jeopardise the interest of an existing venture.