There are, at present, at least three such cases pending before the Foreign Investment Promotion Board (FIPB) wh-ere Indian companies have complained that their technology licensors have set up competing ventures while the current technology agreement is yet to run out. And a few months back, theFIPB witnessed a sordid drama where Denso of Japan applied to set up a unit to make car air-conditioners (ACs) solely for Toyota needs.

This followed an appeal by Lalit Suri's Subros, asking that Denso not be allowed to make ACs for Maruti since Subros was already making these with know-how from Denso itself. Denso was then allowed to come in to cater to Toyota's needs, but no sooner was this permission granted, it went back to the FIPB saying Toyota's needs were too low and that it should be allowed to make units for other car companies as well! That's when the FIPB threw their application out.

But while Denso may be a particularly bad example, isn't it unfair and rather swadeshi to prevent foreign companies from setting up new ventures just because they supply know-how to a local company? Isn't this really just perpetuating an existing local supplier's monopoly, just because he managed to latch on to a technology before any one else did? Isn't the spirit of liberalisation that of encouraging moreplayers to enter a market?

The answer's yes to all these questions, on a surface view. The fact however is that when most of these companies were set up, or when they made significant additional investments, these were based on this foreign technology. A supplier of carburetors to Maruti Udyog, for example, would have invested another Rs 25 crore to set up a unit to manufacture headlights only because he got know-how from, say, Sankyo of Japan, and probably also because Maruti said they wanted him to get technology from Sankyo.

And while that cannot, in itself, be justification enough for preventing, say, Sankyo from setting up a headlights unit of its own, it is surely unethical to allow this to be done while the technology agreement is still in force? After all, these Indian companies made massive investments in plant and machinery only because of the rewards they saw.

In fact, in cases like that of auto company Madhusudan Nippon which makes control cables for Maruti, its technology agreement runs outin 2002 and it has not even amortised the Rs 10 crore it invested in the plant. Its foreign technology supplier Nippon Cable, however, has already got permission to set up its own unit to make control cables for cars primarily. Madhusudan has applied to the FIPB, asking them to scotch Nippon Cable's new venture since it will finish off Madhusudan's existing business with Maruti.

Interestingly, it was precisely to decide what policy needed to be adopted in such cases -- where the existing foreign technology or equity partner wanted to set up his own competing business that the Core Group of Secretaries of the FIPB met in March. While it is not clear as to exactly what they agreed to, when the minutes were circulated a month later, Commerce Secretary P.P. Prabhu raised objections to them.

Prabhu pointed out that even in cases where the foreign collaborator had a `non-exclusive' technology agreement, and wished to strike out on his own, a cooling-off period of 6 mo-nths must be observed -- the minutes,however, said that foreign collaborators would automatically be allowed to set up new units.

While technology partners would still be free to terminate agreements, Prabhu's argument suggested, this would ensure a level-playing field for Indian companies. To use the Madhusudan-Nippon example, for instance, forcing Nippon Cable to wait for six months before it began its new business, would give Madhusudan time to scout around for a new partner -- if Nippon was to be allowed to come in immediately, they'd use this time to simply snap up Madhusudan's business. Prabhu, in fact, also pointed out in his letter that there was grave danger of foreign companies arm-twisting their local counterparts to hike royalties and things like that.

Prabhu felt, for the reasons mentioned earlier, that the six-month cool-off period would resolve a lot of these issues. In any case, a cool-off period is hardly the same as not letting these firms in at any cost.

The industry ministry, incidentally, has rejected Prabhu's viewsaying it didn't really matter in technology agreements which are `non-exclusive' in nature. This, however, is just so much sophistry since most technology agreements that Indian industry has signed, especially the smaller firms, are `non-exclusive' in nature. This is something that foreign collaborators want, since it allows them the freedom to license it to other firms. But just because foreign collaborators want this, doesn't mean that it has to be allowed. There is too much at stake for Indian firms.