The government has turned down Nestle India's plea seeking exemption of 50 per cent export obligation on outsourcing its branded sugar confectionary, pickles and chutneys from local small scale contract manufacturers.
According to sources, the Foreign Investment Promotion Board (FIPB), while clearing Nestle's plans to outsource its products (which are reserved for the SSI sector) from local small scale players, clarified that the company will have to accept an export obligation of 50 per cent of the annual production.
Nestle India had proposed to contract manufacture these products by transferring technology to the SSI units. It contended it was not required to meet the condition for mandatory export obligation since the reserved items were not being directly manufactured by it.
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The administrative department, the department of food processing industries and the ministry of small scale industries (SSI), however, observed that the provision relating to sourcing of items from the small-scale sector applied to SSI reserved items irrespective of whether it is produced by an SSI unit or by any license holder.
Additionally, even with the export obligation condition, the company cannot outsource its products from SSIs holding carry-on business license for the manufacture of reserved products.
The decision is likely to impact the business plans of the company in the area of sugar confectionary (lozenges, sweet meats, etc), pickles and chutneys. A few confectionary brands such as Fox and Allen's are being imported and marketed in India by Nestle India.
The company has already obtained approval from the Reserve Bank of India (RBI) under the automatic route for technical collaboration in respect of these items.
Nestle India has a technological agreement with Nestle SA Switzerland and Nestec Ltd, Switzerland. Nestle India is a subsidiary of the Vevey-based Nestle SA. It manufactures food products and chocolates. It recently forayed the milk (pure milk as well as value-added products) and bottled water business.