The US has taken a serious objection to India's new competition law that requires foreign companies to seek regulator's approval for mergers and acquisitions made anywhere in the world.
In a report submitted to the Congress, the US Trade Department has said it has taken up the issue with the Indian government to change the new regulation governing M&As under the amended Competition Act.
"The United States is working with industry, foreign governments, and Indian companies and industry groups to persuade the government to promulgate regulations under the new law to correct the most problematic aspects of the M&A provisions," the National Trade Estimate Report 2008 has said.
In September 2007, the Indian government introduced new merger control amendments to its Competition Act. The merger and acquisition provisions, once notified, would require foreign companies, including those with a limited access to Indian markets, to seek approvals for M&As made anywhere in the world, even outside India and the company's home country.
Under the new law, the government would impose a 210-day waiting period before the transaction could take place, even if it would have little or no impact on business within India.
"If enacted, a broad swath of global mergers and acquisitions will be potentially caught up in this new law," the NTE report, prepared by the Office of US Trade Representative, said.
The report said the country suffers from a slow bureaucracy "with little or no fear of government action and a clogged court system where cases can linger for years". Indian firms face few, if any, disincentives to engage in anti- competitive business practices, it said.
The report said, while most sectors of the Indian economy are now partially open to foreign investment, the government continues to prohibit or severely restrict FDI in certain politically sensitive sectors, such as agriculture, retail trading, railways and real estate.
But the Indian government's stringent and non-transparent regulations and procedures governing local shareholding inhibit inward investment and increase risk to new entrants.
"Attempts by non-Indians to acquire 100 per cent ownership of a locally traded company, permissible in principle, face regulatory hurdles that render 100 per cent ownership unobtainable under current practice," the report said.
"Price control regulations have undermined incentives for foreign investors to increase their equity holdings in India. Some companies report forced renegotiation of contracts in the power sector as a result of ruling government changes at the state and central levels," it said.