FIPB DECLINES TO APPROVE
UDV'S BOTTLING PLANS
The Foreign Investment Promotion Board (FIPB) has declined
to approve a move by liquor major UDV India - engaged in production
of a number of popular brands including Smirnoff, VAT69, Black
& White, and Archers Peach Schnapps in India - for bottling
of these products through contract bottling units (CBUs).
Also engaged in import and marketing of
premium brands like Johnnie Walker, J&B, Gordons and Bailey's
Irish Cream, the company was keen to get FIPB approval for
arrangements with CBUs since its production in India had declined
sharply following the exit of Gilbey's Green Label whisky
from its portfolio.
UDV India has already entered into arrangements
with various OBUs including Konkan Agro Marine Industries
of Maharashtra and the Barwaha (Madhya Pradesh) and Kothputli
(Rajasthan) units of Associated Alcohol Breweries for bottling
the brands produced in India. While Guinness-UDV India managing
director Amar Raj Singh was not available for comment, government
sources said the company had requested FIPB to "take
on record" its new operating strategy which involves
third party bottling and distribution arrangements.
Pacts have been finalised between three
OBUs and 10 (1) Pvt Ltd, a company which holds the original
IMFL manufacturing licence used by UDV India. These OBUs are
already working for UDV India and the company wanted formal
FIPB approval for this arrangement, the sources said. According
to the existing policy, 100% foreign direct investment (FDI)
is allowed in potable alcohol. However, creation of additional
capacity for manufacture of potable alcohol is not permitted
in view of a ban imposed by the government in '75. Export
oriented units are the only exception to this rule.
Therefore, FIPB provides clearances for
FDI in this sector on the condition that only existing capacity
would be used. What makes matters complicated is the legal
position on who is empowered to issue industrial license for
setting up units for potable alcohol - state governments or
the Centre?
While the Centre has not issued any licenses
for new units since '75, many units are operating under licence
from state governments. In the meanwhile, the Supreme Court
had ruled that all industries engaged in manufacture of potable
alcohol would be under the control of state governments. Making
the situation more complex is a Kerala High Court order which
has observed that obtaining an licence under the Industrial
(Development & Regulation) Act is not enough to start
a potable alcohol unit.
As a result of legal compulsions and the
challenge to the central government's authority, the FIPB
has not been recognising potable alcohol units running on
licences issued by state governments. A foreign investor has
to necessarily have a tie-up with a manufacturing unit licensed
by the Centre.
In the case of UDV, since the OBUs chosen
by the company are operating under licences provided by state
governments, the FIPB has declined approval for the third
party manufacturing arrangement. Technically, that makes the
arrangements with OBUs "unauthorised" in the eyes
of the central government.
UDV's claim is that it had to exit local
production since volumes have declined to two lakh cases as
compared to the earlier situation of two million cases, senior
government officials said. The company had informed the FIPB
that it had to discontinue production in India due to low
volumes, preferring to concentrate on marketing. No royalty
or technical know-how fees is being charged for this technical
arrangement as this is necessary to keep business viable,
the company had argued.
UDV India had earlier obtained permission
from FIPB to carry out wholesale trading. The food processing
ministry had suggested that the company should be permitted
to do wholesale trading in the brands produced in India too,
rather than restricting it to imported brands. Officials said
the FIPB was not inclined to expand the wholesale trade permission
to Indian brands.
