India’s Government Paper Proposes Weakening FDI Rules
The Commerce and Industry Ministry on Friday released proposals for discussion on whether to abolish foreign investment caps imposed on the companies invested in joint ventures in India prior to the year 2005. The discussion paper is said to be a part of a series of papers released by the ministry as a measure to attract more FDIs. Such papers also inform foreign investors how the Government of India is changing policies and priorities over time.
Before 2005, there was a rule for companies who tied up with Indian partners in joint ventures to seek approval from the federal government before bidding for expansion outside the tie-up. The problem is that the policy was reviewed in 2005, after which the rule exempted the companies that invested after 2005 from seeking approval for further expansion of their own. This is clearly observed as discrimination between the companies that entered India before and after 2005.
Vedanta’s Acquisition Bid
Maybe the recent bid by Vedanta Resources to acquire Cairn India, a subsidiary of the U.K. based Cairn, prompted the ministry to release the discussion paper. It is a common practice in India that, when the government intends a policy review, it would first release discussion papers to identify the opposition so that it can calm them properly. Cairn India has a tie-up with ONGC, a public sector oil exploration company, in its biggest oil well in Rajasthan State. Cairn India holds 70% stake and ONGC the rest in it.
India focused Vedanta Resources made the highest bid for Cairn India of $9.6 billion and sought the government’s approval, which is still pending. When the matter came to light, there were huge expectations that the ONGC might exercise its right of first rejection and even make its own bid for Cairn India along with other public sector oil companies Oil India and Indian Oil. Some officials confirmed the idea unofficially, but later some other officials told again unofficially, that there was no such question of bidding for Cairn India as the bid placed by Vedanta was already at a high level. The episode occupied headlines of business pages throughout August.
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