Current regulatory trends bode well for joint ventures

The “Make in India” initiative launched by Prime Minister Modi on 25 September 2014 offered several incentives, enabling foreign businesses in various sectors to collaborate with domestic players. It provided an impetus to the growing multinational interest for doing business in India, either in the form of joint ventures or of a wholly owned subsidiary.

Policies have been progressively simplified and procedures enacted to create a suitable environment for foreign direct investment (FDI) in India. Except for a small negative or restrictive list, the government has placed all items under the automatic route for FDI and there have been several joint ventures across sectors with insurance, retail and automobiles being the most prevalent.

However, over time, corporate India has seen an increasing incidence of failure of established joint ventures, a conflict stemming from the difference in expectations or approaches of partners. The regulatory framework in India, however, is progressively changing and laws are being formulated to protect exit mechanisms for such overseas entities. Complete repatriation of dividend and capital, including royalty payouts is now permissible and also there are certain sectors that permit foreign minority shareholders to exercise control.

Bhumika Batra is an associate partner and Sachita Shetty is a senior associate at Crawford Bayley & Co.