CCEA to decide on PepsiCo's divestment plea soon

NEW DELHI: The Cabinet Committee on Economic Affairs (CCEA) will soon consider PepsiCo���s plea for waiver of the mandatory 49% disinvestment in bottling arms. PepsiCo had sought exemption from the divestment clause, arguing that 100% foreign investment is now allowed in the food processing sector.

In June last year, PepsiCo had requested the government to waive off this clause. The Cabinet decision is significant, as it would have a bearing on the company���s investments in India.The Foreign Investment Promotion Bureau (FIPB) is of the view that company���s proposal to inject Rs 215 crore in the Indian venture could be cleared only if the company honours its commitment on mandatory divestment of its bottling operations. A precedent has already been set when the government made Coca-Cola divest 49% in its bottling operations in 2002, despite the cola company���s repeated requests for a waiver.

However, FIPB has not rejected PepsiCo���s request for a waiver. Instead, it has decided to refer the proposal to CCEA. Earlier, the Board had asked the department of industrial policy & promotion and the finance ministry to jointly study the impact of the mandatory divestment clause. The study would not be of significance now since CCEA will take a call on the issue.

Originally, the divestment clause was made mandatory to provide domestic investors a window of opportunity in sectors like food processing. Since FDI in sectors like soft drinks was not considered a priority, officials made companies in such sectors undertake a commitment to divest in favour of domestic investors.

When Coke said it had booked huge losses and cannot go in for an IPO, the government asked it to divest 40% through other routes. Eventually, Coke opted for private placement of shares. Subsequently, the Atlanta-based cola giant bought back the shares from domestic investors.