Selloff Rule For 100% Foreign Stake In Consumer Goods Likely

The government is also considering extending this guideline to foreign companies which are already in operation in the consumer goods sector and have been given permission to set up fully-owned subsidiaries.

While the level of dilution has still not been worked out, government sources say it could be up to 49 per cent.

The move might affect a host of foreign companies, including soft drink giant Pepsi, breakfast cereal company Kellogg's and Philip Morris of the US, and Samsung Electronics among others which have already been given the permission to set up wholly-owned subsidiaries. A bevy of other multinationals are also considering a similar route to enter the country.

 

Confirming the move, a senior industry ministry official said: "Yes, we are considering a move to ask foreign companies seeking clearance for 100 per cent subsidiaries to dilute their equity over a period of time."

He said the government would allow 100 per cent foreign equity initially in projects where the Indian partner might not be able to bring in finance or technology. But the idea is to encourage the foreign entities to dilute their stake later on, he added.

The FIPB has already made a beginning by putting conditions in the case of the application of Coca Cola South Asia seeking to invest $700 million over 10 years through two fully-owned subsidiaries. The board has given permission to Coke on the condition that the company would dilute its equity within the next four years.

A few months ago, the FIPB had given similar permission to Hyundai after it agreed to dilute its stake to 60 per cent by going public after a particular period.

The move to ask foreign companies to dilute their stakes would meet a long-standing demand of a large section of the Indian industry. The domestic industry has been suggesting that the government should follow the policies prevalent in South-East Asian countries where local companies and the public have been made partners in large-scale projects put up by foreign companies.