The government is planning to allow multinationals to undertake wholesale trading of those products that have not been successful during their test-marketing in the country.
The existing rule allows foreign investors to import and test-market products in the country on the condition that within two years, the company will set up a manufacturing facility for the same products.
In the recent past, companies that had failed to set up a manufacturing facility had not been allowed to continue further test-marketing, let alone trading in the same product.
Under the new rule, multinational companies will be allowed to import their products and sell through wholesalers, who can in turn market them through retailers.
However, direct trading (import and marketing through retailers), as is allowed during test-marketing, will not be permitted after the expiry of the test-marketing period of two years.
"Since wholesale trading of products is allowed, we decided that we may consider these requests from companies on a case-to-case basis. Manufacturing of some products may not be feasible in India. Since some people might require these, their imports should be permitted," said a government official.
The government has more reasons for this sudden change of heart. Since quantitative and qualitative restrictions have been lifted on several items of imports, almost all products, barring a few on the negative list, can be freely imported. Banning imports may violate the World Trade Organisation agreements.
"We had a hard look at the policy. There is a lacunae. There is a possibility that test-marketing of a particular product may not be successful. In such a scenario, the foreign investor will not be allowed to conduct business at all, unless it sets up a manufacturing facility. Either the government should extend the time period for test-marketing or it should permit imports," the official said.
He added that since foreign direct investment in trading was barred despite lifting the bar on imports, the only other option was to allow wholesale imports.
"We received several cases in the past few months where a company requested the Foreign Investment Promotion Board to extend the test-marketing period or permit trading. In one particular case, the department of commerce backed the proposal, prompting the board to review such cases over the past year and determine the consistency in the decisions of the board in these cases," he said.
The commerce ministry, which has so far opposed import rights being granted to foreign investors for products that had been test marketed, said the existing policy was too stringent and should be reviewed in the light of the prevalent import regime. The finance ministry also backed the proposal, the source added.
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