Easing Of Export Obligations Ruled Out

The government has decided against any relaxation on maintaining exports for forex neutrality or exporting other products than those mentioned by companies.

This decision can have far reaching effects in alcohol-related ventures as also regarding other companies which have abeen allowed to set up shop in India and have undertaken to meet a specified export obligation.

This was indicated in the Foreign Investment Promotion Board (FIPB) on Saturday rejecting a proposal of Seagram India Pvt Ltd to have flexibility in exports for forex neutrality and that the company be allowed to maintain the neutrality by being allowed to export other products manufactured by the company.

 

Seagram India is a 100 per cent susbidiary of Seagram International BV Netherland which itself is a wholly-owned susbidiary of Seagram Company Ltd, Canada. Foreign investment amounted to rs 150 crore.

However, the FIPB has okayed a equity proposal of Germany's Reh Kendermann Weinkellerei GmBH (RKW), to manufacture, process and bottle international quality wines and sparkling wines in collaboration with an Indian company in which the German company would hold 74 per cent equity stake. Project cost: Rs 60 crore.

In the Seagram India's case, the proposal was rejected, pointed out government officials, as the company wanted amendments in clauses which related to export obligations to which the company was committed to when allowed to set up shop in India _- export of sufficient quantities of liquor products to maintain foreign exchange neutrality.

Seagram India had stated in its application to the FIPB that exports for forex neutrality must have fliexibility to include other products manufactured by the company as also any item under Annexure-III which the company can export and that the company's performance on neutrality be evaluated cumulatively at the end of five years and not on an annual basis.

The company had also clarified that the reason for poor export performance is mainly that the beverage spirit branded bottled products, being entirely molasses-based,cannot be exported to developed markets as they do not meet product specifications prevalent in the UK, West Europe and North America.

The company had also said that upgradation of Seagram's in-house international standards like quality of ROPP caps, bottles, mono cartons, etc had resulted in the company's affiliates sourcing their requirements from India.

Seagram had said this should be "included" in their balancing the company's forex neutrality condition over the five year period.

Interestingly, the food processing ministry had shot off letters to liquor majors earlier this year stating that they were lagging behind in their export obligations. But such control by the centre, legal experts point out, can tantamount to contempt of a 1977 Supreme Court judgement on non-molasses-based potable alcohol projects. The SC judgement had ruled that the Union of India has no say in the (licencing and other related) matter and the powers ought to lie with the states. (RETAIN THIS PARA DEFINITELY)

Meanwhile, Germany's RKW has projected an export earning of $ 17.25 million over a period of six years. It proposes to establish a winery for producing wines with an annual capacity of 12.60 million litres in phase one; establishment of model farm with R&D facility and import of bulk wines for blending/upgrading the domestically produced wines.

For the winery, the Maharashtra government has agreed to grant necessary permission/licenses for setting up of a winery in Nashik region. The project _- where foreign investment inflow has been estimated to be about $ 29.50 million_- is aimed at meeting the growing demand for wines in the Asian and European markets and since Gunther Reh AG, whose wholly-owned subsidiary is RKW, has a well establsihed marketing and distribution network in over 86 countries, sizeable outputs from RKW's winery would be exported.

RKW has also undertaken to balance outgoings of foreign exchange towards import of bulk wines and dividend remittance by exporting wines and allied products permitted by the govrenment.