INDIA BUSINESS WORLD - FEBRUARY 2007
The Month that was ...

HAIER GETS FIPB NOD TO MARKET MOBILE PHONES

In an interesting turn to the recent debate over security concerns related to foreign investment, Chinese giant Haier International has obtained permission from the government to market mobile phones and fixed wireless phones (FWP) in India. Though the external affairs ministry (MEA) wanted more time to scrutinise Haier's investment plan, the Foreign Investment Promotion Board (FIPB) cleared it recently, emphasising that Haier is a well-known company.

The issue came up for consideration after Haier formed a joint venture with Nescomed Technologies for taking up distribution and marketing of mobile phones and FWP. The JV company, christened Haier Telecom (India) would also take up software development and related activities.

Since the government provides automatic clearance to wholesale trade, Haier went ahead and set up the JV without approaching FIPB.

When the investor approached RBI to complete formalities for transfer of funds, the apex bank directed Haier to approach FIPB. Though wholesale cash & trade has been put on the automatic approval list, FEMA regulations have not been amended to include this change. Therefore, the RBI felt FIPB clearance would be necessary. "The shares to the foreign investor have been issued. However, on filing Form FC (GPR), the RBI in May 2006 directed the company to obtain FIPB approval," say FIPB documents. Haier holds 51% in the JV with Nescomed Technologies holding the remaining 49%.

"As per Press Note 4 of 2006, wholesale cash & carry trading is on automatic route. The activity of the company i.e. wholesale trading of Haier mobile brand phones after importing them, do not require FIPB approval. However, since the FEMA regulation has not been amended, RBI has advised the applicant in writing to obtain FIPB approval," documents say.

The Chinese company then approached FIPB and the telecom department supported clearance while the commerce department did not offer any comments. The external affairs ministry sought more time, obviously to look at the proposals from the strategic and security points of view. The Board, however, ruled that Haier is an established brand and the detailed examination of antecedents of the company is not required since it is not new to India.

Clearance of the proposal despite MEA's request for more time to examine the details indicates that the security concerns over Chinese investment may be subsiding. Even in the case of segments like white goods, the government has been hesitant to approve foreign investment from countries which are perceived to be a security threat.