ATTENTION PROSPECTIVE FOREIGN INVESTORS WILLING
TO EXPLORE BOTTLING AND DISTRIBUTION OF BIO-GAS IN INDIA: In the Union
Budget 2014-15, Government of India (“GOI”)
has decided to allow manufacturing entities to sell their products
through retail trading mechanism including through e-commerce platforms without
any additional approval. This provision is a marked departure from
the existing norms which prohibited single-brand FDI entities from undertaking
e-commerce retail trading. India has already allowed 100% FDI (in automatic
route) for entities engaged in manufacturing, except for manufacturing of items
reserved for MSMEs and defence items. However, FDI entities engaged in
manufacturing and distribution of products as “single brand”, are not allowed
to have FDI beyond 49% under automatic route. Additionally, FDI entities are
not permitted to undertake any B2C commerce through e-commerce platforms
although 100% FDI is permitted (in automatic route) in e-commerce activities
under B2B model.
Although the intent of the GOI is positive,
however, the mechanism it should be clarified further. By way of example, under
the extant FDI framework, a foreign entrepreneur (say FY Limited doing
bio-energy business overseas under “FY” brand) intending to incorporate
a single Indian company to be engaged in bottling and distribution of bio-gas
cylinders for domestic and commercial use will encounter the following situations:
Bio-gas production the name of “FY”
(not for retail distribution)
|
Manufacturing activity and 100% FDI is allowed. Produced
gas to be sold only through wholesale/bulk method. Advantage: Possibility of incorporating WOS. Disadvantage: No direct consumer interface.
|
Bio-gas production in the name of “FY”
(for retail distribution)
|
Manufacturing activity for the purpose of retail
sale. Only 49% FDI is allowed under automatic route. The foreign entrepreneur
will have to look for an Indian partner. Raising FDI beyond 51% will require
GOI approval plus sectoral of conditions like compulsory procurement from
SMEs etc. Advantage: Creating
brand value in India. Disadvantage:
Greater dependability on Indian partner on operations and management.
|
In light of this, expect GOI to come out with a
press release dealing comprehensively with production and distribution of
single brand products. It is also expected that GOI will further relax bio-gas
bottling sector from stringent conditions of single brand product retailing as
successful bio-gas companies can contribute in big way towards rural &
urban development, agriculture and saving of public expenditure.
No comments:
Post a Comment