Mncs Can Keep 100% In Existing Units

"There will be no new conditions imposed on any company which has already received clearances," said a senior government official.

The clarification was issued in the wake of the confusion over the provision in the new policy that insists on a phased divestment over time of the foreign equity holding in 100 per cent subsidiary companies in areas where no new technology is being brought in.

The FIPB panel, in a recent policy decision, had decided to allow foreign companies to bring in direct equity investment through the 100 per cent subsidiary route in the consumer goods sector, but with the rider that these companies would have to divest to enlarge the domestic equity base within a specified period.

 

Notable among these approvals was the recent clearance given to the Atlanta-based soft drinks major Coca Cola which sought to invest $700 million through two 100 per cent bottling subsidiaries in the country. The government has directed the multinational to divest upto 49 per cent stake within five years in each of the two subsidiaries in favour of domestic equity.

Multinationals like Pepsi, Kellogg's, and others, which had already set up 100 per cent subsidiaries in the country, had expressed apprehensions about being forced to divest in line with the new policy, following discussions with government representatives about mandatory divestment.

However, the decision not to impose any fresh riders on those companies which have already been given an unqualified approval gives a breather to all these companies.

The government decision to include the divestment condition for approval to any new 100 per cent subsidiary proposal has been motivated by the logic to regulate the hitherto unfettered role of multinationals in, what the government considers, areas where no significantly sophisticated technology is being brought into the country.

However, the FIPB will clear 100 per cent subsidiary proposals without any divestment condition in areas where technology is not available in the country. For instance, Coke's proposal to raise equity investment in wholly-owned subsidiary Britco from Rs 150 crore to Rs 440 crore for setting up canning and PET lines in the country has been cleared without a similar rider because the government considers that the technology is absent in the Indian bottling operations.