The government is thinking of allowing foreign investors to set up a new subsidiary in India without having to procure a no-objection certificate from a partner if the old joint venture has ceased to operate.

This is to be part of an impending package of measures to relax the rules for foreign direct investment.

The norm, however, is likely to remain as stringent as it currently is if the foreign investor is involved in a joint venture that is up and running.

"The proposal we are considering applies only to investors whose previous joint ventures have failed," government sources explained.

The idea is to prevent Indian companies from taking advantage of the NoC requirement to prevent their former partners from setting up a new subsidiary.

Currently, the norm (known as Press Note 18) requires the foreign collaborator (both technical and financial) to procure an NoC from the local partner when it is setting up a new subsidiary for the same or related areas of business.

The condition applies to even companies whose previous joint ventures have fallen apart.

But the government has noted that several foreign investors whose joint ventures have failed are being unable to re-enter the country because their erstwhile partners have decided not to grant them an NoC.

Recent examples include TCL Electronics (Baron) and Kennamettel (the Yash Birla group).

"The idea of Press Note 18 was to protect Indian companies from their more powerful foreign collaborators. We do not want Indian companies to take advantage of this," the official said.

The Foreign Investment Promotion Board has also rejected cases where the foreign investor has failed to produce an NoC. Officials said the government was also debating whether the FIPB, which is a regulator and a facilitator for FDI, should take a decision based on legal disputes between the partners.