Govt proposes loosening foreign investment rules

Govt proposes loosening foreign investment rules

New Delhi: The government has released a discussion paper on whether to scrap existing rules that force foreign companies who have tied up with an Indian firm to seek approval before expanding outside the joint venture.

The proposal, issued by the commerce and industry ministry on Friday, is part of a series of papers, closely watched by foreign investors, testing the appetite for more relaxed investment norms in Asia’s third-largest economy.

Foreign companies who tied up with Indian firms before 2005 must ask the government’s permission to make new investments in the same field and prove the new venture would not hurt its Indian partner’s interests.

Foreign companies who came to India after 2005, the year the policy was last reviewed, are already exempt.

“The Indian industry today is in a much stronger position than it was in the 1990s, when the condition was first introduced. It, therefore, needs to be seen whether there is a need to continue with the elements of such a regime even today," the paper said.

“It can be argued that government should not be concerned about commercial issues between two business partners. The measure discriminates between the foreign investors who had shown confidence in India, by investing in the country prior to 2005 and those who invested later," it added.

The first discussion paper released by the ministry in May suggested almost tripling the foreign direct investment cap on defence equipment production to 74%.

In July, the ministry proposed opening the politically sensitive multi-brand retail sector to foreign firms.

India’s foreign direct investment (FDI) inflows in the first six months of this year were down 18% to $10.78 billion from a year ago, on heightened risk aversion among global investors.