March, 2005

The Government has recently cleared a hike in foreign direct investment ceiling for telecom services from 49% to 74%. This is expected to enable Indian promoters of telecom services to attract foreign players and attract the funding requirements for these capital intensive projects. In practice in any case, foreign companies were able to side-step restriction through the holding company route. Companies like Hutch and Spice have close to 73% foreign investment through the "holding company route." The new FDI policy would allow them to simplify their equity structures and regularise their holding pattern. As per the proposal, FDI would include investments from foreign institutional investors, non resident Indians, overseas commercial borrowings, foreign currency convertible bonds, American depository receipts, global depository receipts, convertible preferential shares, proportionate foreign investments in Indian promoters, and investment companies, including their holding companies.

March, 2005

Press note 18, a controversial policy announcement of the Government made in 2000 prevented foreign companies already in an Indian joint venture from getting into other ventures without the existing partner's permission. The Government has recently issued revised guidelines superseding this restrictive policy. The revised guidelines under new Press Note called Press Note 1 allows new proposals for foreign investment and technical collaboration under automatic route subject to sectoral policies on foreign investment. However, Press Note 1 applies only to future joint ventures i.e. joint ventures formed on or after December 12, 2004. In other words, prior government approval would continue to be required in cases where the foreign investor has an existing joint venture or technology transfer or trademark agreement in the same field. The onus to provide requisite justification as also proof that the new proposal would or would not jeopardize the existing joint venture or other stakeholders would lie equally on foreign investor or technology supplier and the Indian partner.