India set to relax consent rule to encourage foreign companies – this can have a genuine vacuum effect on International companies shifting over to India from China
Kiran Chaube, Special Correspondent
January 13, 2005

”Press note 18” was a dreadful thing in India for the international free enterprises that wanted to do business in the country of a growing middleclass.

It really means that the foreign company in joint ventures cannot expand or start a business rivaling a domestic enterprise unless Government consent is allowed. This used to cause major problems. 

When an international business goes to India, it starts operations and finds that competition and strategic business needs are forcing the company to move into an adjacent area of operation. But the uncertainty over such possible moves in the future discouraged many foreign companies to enter and operate in India. 

But Manmohan Singh, India's prime minister said the rule had become an anachronism and would no longer apply to future joint ventures involving foreign companies.

"New joint ventures and collaborations will have to be shaped by commercial contractual agreements based on the free will of the partners without government interference," Mr. Singh told a business conference in Calcutta.

According to Kamal Nath, the commerce minister of India, this is being eliminated to create a perception that India is an ideal place for investment and free trade.

International think tanks believe that India is determined to put itself in a position within next six months to create a perception that India is ten times better for Foreign Direct Investments (FDI) than China. This can be a great opportunity for India. As international pressures make Chinese currency to revaluate and Chinese economy slows down further, India’s approach to removal of barriers can work very well to attract the FDIs.

India has rapidly improved its appeal to foreign investors. A recent survey by AT Kearney consultants ranked India as the third most attractive investment destination in 2004, after China and the US. Two years ago it was 15th. FDI in India increased 54 per cent year-on-year in January to September 2004 to reach $3bn (€2.3bn, £1.6bn).