PN-1 BREATHER FOR FOREIGN FIRMS SOON

Rajat Guha, New Delhi
The Economic Times

The government has stepped in to protect interests of foreign companies, whose investment plans hit roadblocks due to the Press Note 1 dispensation which makes it mandatory for a foreign company to get an no-objection certificate from its Indian partner before setting up a new business here in the same field.

The finance ministry has set up a committee comprising officials from department of industrial policy and promotion (DIPP), foreign investment promotion board (FIPB) and the commerce department to look into the cases and check whether the dispensation of PN-1 invoked by the Indian JV partners stands ground. The government has observed that sometimes the Indian JV partner becomes adamant on not extending the NOC, creating a roadblock for future investments by foreign companies.

The government had planned to scrap Press Note 1, but due to resistance from domestic players, exemptions are now being granted on a case-to-case basis. The NOC condition is applicable for JVs set up before January 2005. FIPB clearance is mandatory in such cases. The FIPB is of the view that in some cases, PN-1 obligation delays investments by MNCs due to which companies have now started bypassing India to invest in other countries. Several companies like Danone have been facing the heat in India due to the PN-1 stipulation.

“In some cases, the government feels that getting FIPB approval and NOC from Indian partners become time-consuming which is a hurdle for multinational companies keen on investing in India. The recently formed committee will get into the thick of things and resolve issues on fast-track basis. In many cases, Indian promoters block foreign partners on grounds which are insufficient,” a senior government official in the commerce & industry ministry said.

If the government manages to resolve such disputes by interacting with the concerned parties, it would go a long way in attracting FDI and send out positive signals to foreign investors.

Since it is felt that attracting FDI is getting tougher now due to indications of a global economic slowdown, the department wants to send positive signals to global investors. Press Note 1 was formulated in 2005 to dilute an earlier government provision called Press Note 18, which stipulated that the foreign company had to furnish a NOC from an Indian partner if it planned to set up a wholly-owned subsidiary even in an allied field. Press Note 1 has restricted the need for an NOC to the same activity only.