FDI Rules governing JVs may be relaxed.

The Government of India has issued a discussion paper on FDI policy regarding foreign / technical collaboration in case of existing Joint ventures in India.

The purpose of this discussion paper is to solicit the comments and suggestion from public at large that any relaxation in FDI policy regarding JV & technical Collaboration / trademark agreement is required or not. This discussion paper also seeks the people’s views on the scope of relaxation.

The current move of Government of India is in furtherance of its continued effort to make FDI sector more attractive and investor friendly. Earlier, Government of India has also proposed relaxation of FDI policy in Multi-brand retail and in Defence sector.

Under the existing FDI regime, foreign investor, who entered into India before January 12, 2005 are not eligible for Automatic route for bringing in FDI, technology transfer or Trademark Agreement. It is necessary to take Government approval. Further, the foreign investor has to prove to the satisfaction of the government that the new proposal would not in any manner jeopardize the interest of existing joint-venture or technology / trademark partner or other stake holders.

However, the proposed relaxation of FDI policy shall not be applicable to Joint Ventures entered into after January 12, 2005. The reason behind it that as per PRESS NOTE 1 (2005 SERIES) all the Joint Ventures entered after January 12, 2005 are eligible for Automatic approval except in certain cases and also the onus to prove that the new joint venture shall not jeopardize the earlier one, is equally on Foreign & domestic companies. Further, the “Conflict of Interest” clause in JV could be embodied to safeguard the interest of Joint venture Partners.

The proposed relaxation aims at minimizing discrimination between foreign investors who had invested prior to 2005 and those who invested later. Further, the proposed relaxation shall promote healthy competition in this field and sustained long-term growth. Today the Indian industry is at par with its foreign counter-parts and hence there is absolutely no need of the clauses that brings onus only upon foreign investor that new proposal would not in any manner jeopardize the interest of existing joint-venture.