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Taming the Dragon, the FIPB way

Partha Ghosh

The Foreign Investment Promotion Board is closely scrutinising proposals related to imports from China as it feels that cheap products from that country may be dumped locally under the garb of test-marketing.

The FIPB recently recommended rejection of a proposal of the Beijing-based Tianjin Tianshi Group Co Ltd, to import food products, stationary, drugs, medicine and household items for marketing in India. It also directed Konka Electronics, a Chinese television manufacturer, not to import and trade in certain product categories.

These decisions come close on the heels of the government objecting to Dabon International, a 50:50 joint venture between Dabur India and Bongrain International of France, importing flavoured milk from China for marketing in the country.

At its last meeting, however, the board okayed the proposal to import milk as the company had already invested Rs 300 million in a unit producing cheese. But this was subject to the condition that Dabon would be making flavoured milk in India within a stipulated time.

As per the FDI guidelines, companies are allowed to import products for test marketing for the first two years, by which time the manufacturing base has to be set up.

A government official pointed out that in each case, the company proposed to import for a while (for test marketing or otherwise) and once the product became popular, set up a manufacturing unit. In fact, in one of the cases, the company came back to the FIPB after a two-year gap to seek permission to continue imports "since the manufacturing facility was not yet ready."

Sources confirmed that the Tianshi proposal was rejected. The company had proposed to route 90 per cent of its equity investment ($1 million) through a Canadian subsidiary, Tianshi (Canada) Health Products, Inc. "This is a new development. Chinese companies are seen to be taking an indirect route of pumping their investments through a foreign subsidiary but importing and marketing the same products manufactured in China, perhaps at cheaper costs," the official added.

But he clarified that the rejection was recommended not because of the Chinese connection, but because trading was not permitted under law.

Tianjin Tianshi had proposed that for the first couple of years it would import food products, drugs, cosmetics, cleaning products and other household items, including those manufactured by the Tianshi group of companies for sale. It had added that imports would be substituted soon with locally manufactured products.

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