M A I N   N E W S

Left, UPA on collision course
R Suryamurthy and Gaurav Choudhury
Tribune New Service

New Delhi, October 4
The Left and the UPA government again appear to be heading towards a collision course with the government reportedly considering to scrap Press Note 18 — a long standing circular aimed at protecting domestic industry.

Press Note 18, which was issued in December 1998, requires that a foreign company in a joint venture with an Indian company cannot set up another wholly-owned subsidiary in a similar line of business without the domestic partner’s permission.

“The scrapping of Press Note 18 would harm the interests of domestic industries and provide MNCs with additional leverage”, the CPI (M) said today.

The party urged the Manmohan Singh Government to take into account “the opinion of domestic industry and not to proceed” with the move to scrap the provision as has been reported.

Prior to his visit to Washington, Finance Minister P Chidambaram has said: “While we agree that the rule is outdated, the Ministry of Industry will have to bring to the Cabinet for clearance”.

The domestic industry, for obvious reasons, also are not in support of such a move, “as it would give complete leverage to foreign investors”.

“The scrapping of Press Note 18 would mean immense benefits to foreign investors at the cost of domestic industry. This cannot and should not be encouraged”, a leading industrialist said on condition of anonymity.

The view within the domestic industry is that scrapping of the circular would be tantamount to allowing “back-door” entry to foreign investors and carries the danger of “crowding out” domestic industry.

The primary objective of this provision was to protect the interests of the local industry and not allow foreign partners to float a 100 per cent subsidiary and compete with the original joint venture producing a similar product as it would hurt the interests of all stakeholders in the original joint venture.

In case the foreign partner wishes to set up a subsidiary, it has to obtain a NOC and provide sufficient explanation to the Foreign Investment Promotion Board (FIPB) substantiating the reasons for the new subsidiary.

However, it has been argued in some quarters that the domestic partner has been “misusing” Press Note 18 as an “arm-twisting” tool. This, in turn, some believe, have acted as a deterrent for increased FDI inflow to the country.

FDI to India, the dominant host country in the South Asia region, grew by 24 per cent in 2003 with total FDI value estimated to be 4.3 billion dollars.

According to UNCTAD FDI flows to South Asia are set to increase, especially to India. The World Bank, in its Global Development Finance (2004) projected FDI flows to developing countries in 2004 of 152 billion dollars, compared with 135 billion dollars in 2003. For 2005, the Bank projects these flows to reach 165 billion dollars.

Those arguing in favour of scrapping Press Note 18 point out that this provision could turn out to be a major irritant for FDI inflow as, foreign investors reach out to other destinations in the developing world.

The UPA government announced a hike in FDI limits in telecom (from 49 to 74 per cent), insurance (26 to 49 per cent) and civil aviation (40 to 49 per cent).

These proposals had evoked strong criticism, particularly from the Left parties and the reported move of government on Press Note 18 is seen by many as a move to allow FDI through the automatic route.

The next UPA-Left Coordination Committee meeting is expected to discuss the issue.