The government has decided to allow foreign companies operating in the country to set up trading subsidiaries subject to the condition that they concentrate on export activity. They will be denied access to the domestic wholesale and retail markets.
The decision covers not only wholly-owned subsidiaries but also joint ventures in which foreign companies have a less-than-majority stake.
In line with the clearly-defined policy decision, the foreign investment promotion board (FIPB) has approved a clutch of proposals submitted by foreign companies and rejected one that sought to undertake only domestic trading activity.
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The FIPB spiked the proposal of Denmark-based Asiatic Co Ltd seeking an amendment to its earlier approved plan so that it could undertake wholesale distribution in the country.
Earlier, the company had been allowed to set a 100 per cent subsidiary with foreign equity totalling Rs 50 lakh to carry out trading activities in the country.
The decision was prompted by the objections of the administrative ministry for trading activities the commerce ministry which said the company should not be allowed to undertake wholesale or retail trading in the country.
The FIPB, in its recommendation to the industry minister, allowed the company to undertake technical training and knowhow transfer to staff, subject to the condition that it did not engage in domestic wholesale distribution and trade.
The FIPB cleared the proposal by Ming Hong India Pvt Ltd seeking to set up a joint venture company with 49 per cent foreign investment amounting to Rs 49 lakh in a paid-up capital of Rs 1 crore to carry out trading activities in TV games, bicycle parts, plastic goods and electronic goods with an export projection of Rs 40 lakh.
While allowing the joint venture to import electronic goods for re-export to the east European market, the FIPB accepted the commerce ministrys condition that the company should not be allowed to undertake any domestic trading and focus only on exports. The company will also have to ensure that exports are in free foreign exchange and not under any rupee account in east European markets.
In consonance with the broad policy decision, the FIPB rejected another proposal which sought to inject equity investment by non-resident Indians amounting to 99.99 per cent of the total capital of a trading firm.
The rejection followed the commerce ministrys objections to the fact that this amounted to a virtually 100 per cent NRI stake in a wholesale trading firm that dealt in a variety of products including a number of consumer goods, which ran counter to the policy.
The Foreign Investment Promotion Board permitted an increase in the foreign stake of Bolukha (India) Ltd which deals in tea, coffee, medicines and spices from 49 per cent to 80 per cent subject to the condition that the company did not trade in the domestic market.