Should Press Note 1 be scrapped?

Votaries of scrapping Press Note 1 point out that such a step is critically important to attract FDI at a time when India’s current account deficit is galloping. They feel that stringent provisions in the Note block the entry of state-of-the-art technology. There is a bit of an exaggeration in such assertions. Even with these restrictions in place, there has been considerable increase in the inflow of investments last year. The current slowdown in the FDI flows is mostly because of the constraints in the global capital movement owing to the subprime mortgage crisis. Our approach has been to calibrate the foreign investment policy, taking cognisance of the strength of the Indian companies to face competition. Press Note 18 was liberalised in a significant manner through Press Note 1. Some of the loopholes that the Indian partners took advantage of have been dropped. Fresh investments in industries like IT and mining do not require ‘no objection certificate’ from the Indian partners. Also, ‘conflict of interest clause’ has been inserted in the Note to give a level playing field for Indian and MNC partners for speedy dispute disposal. Since then, a few cases have been decided in favour of the foreign partners. Notable among them are V K Modi Group’s tussle with the US-based Guardian, LMW’s dispute with Reiter, etc. Corporate takeovers, mergers and acquisitions or setting up greenfield projects abroad are marked by a few checks and balances either imposed by the respective governments or resistance from promoters and shareholders. The murky debate and prejudiced actions during Arcelor-Mittal takeover or when Tata acquired Corus are still fresh in our mind. Many foreign investors are concerned about the rule of law in China. Administrative fiat can supersede corporate actions. We have rule of law in our country and our courts are widely acclaimed as impartial institutions. There should be progressive flexibility in the inflow of FDI. We can expand the segments where ‘no objection certificates’ are not insisted upon from the Indian partner. But any irrational approach in making India an attractive FDI destination at the cost of its domestic industry is like throwing the baby out with bath water. By Ms.Bobby Aanand, Metropolitan Jury

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