Guardian: decision deferred on Indian subsidiary

India“s Foreign Investment Promotion Board (FIPB) deferred a decision on 8 September 2006 on the proposal from Guardian International to set up a wholly-owned subsidiary in India as the finance minis…

India“s Foreign Investment Promotion Board (FIPB) deferred a decision on 8 September 2006 on the proposal from Guardian International to set up a wholly-owned subsidiary in India as the finance ministry urged the board to refer the issue back to the Department of Industrial Policy and Promotion (DIPP). The finance ministry expressed the opinion that a “valid“ no-objection certificate (NOC) from Gujarat Guardian, in which Guardian International holds a 50% stake, was necessary. The FIPB was also made aware of a representation from Modi Rubber, which holds a 22.4% stake in Gujarat Guardian, against the US multinational“s new venture The DIPP had proposed that the Guardian subsidiary could be cleared even without an NOC from Gujarat Guardian. However, since the finance ministry differed in its opinion, a decision on the proposal has been deferred. Close attention is being paid to FIPB“s position on the proposal, as an approval of Guardian“s new venture without a NOC would mean that Press Note 1 was not sacrosanct. Earlier known as Press Note 18, the guidelines protect Indian partners from the decisions of foreign investors that could put existing joint ventures at risk. Clearance to the proposal in the current form would amount to diluting of Press Note 1, the finance ministry feels. The Guardian proposal would be taken up again once the DIPP reviews its stand, government sources said. Support for Guardian has not been forthcoming from two Gujarat government-owned companies, Gujarat Alkalies & Chemicals and Gujarat Mineral Development Corporation, each with 4.73% stakes in Gujarat Guardian. DIPP had said that it sees no threat to Gujarat Guardian from the proposed subsidiary. The market for float glass was expanding rapidly and the subsidiary would be located outside Gujarat Guardian“s home state, the department had argued. Department officials had informed FIPB that Guardian also plans to buy out local partners in Gujarat Guardian. According to Press Note 1, 2005, Guardian International needs to obtain a NOC from all partners who hold more than a 3% stake in the joint venture. DIPP was of the opinion that the new venture will bring fresh investments and technology into the Indian float glass market. Sources said the DIPP may send another note to the FIPB on the issue. With the larger picture of diluting Press Note 1 in mind, the proposal may be given more thought, they added.