The government is tightening norms for test-marketing by foreign firms. Permission will be granted to companies only if they submit a detailed schedule for commencing manufacturing.
Additionally, proposals for wholesale trading of goods once proposed for test-marketing may not be permitted.
Commerce ministry sources said the government wanted to ensure that fly-by-night operators do not enter the Indian market. It will also ensure inflow of quality foreign direct investment.
The onus of determining the plausibility of manufacturing will be on the administrative ministry concerned. The decision will be taken based on an internal assessment of the company's proposal, which will have to include a schedule for commencing manufacturing.
Several companies have set up shop in India on the condition that they will import and test-market products in India for two years. These companies are required to set up a manufacturing unit within these two years.
However, in a number of cases, companies have come back to the government and sought extension for the seed marketing duration. Last year, the government decided not to grant any extension.
The sources said it had come to light that several firms were setting up shop on the pretext of conducting seed marketing, but they were either exiting after generating a certain amount of business or seeking extension of the seed marketing period.
High volume, low cost manufacturers from China made a killing this way last year. A particular company had sought permission to make high-technology products in India.
It wanted to test market for two years. But at the end of the two-year period, the company sought an extension, which was not granted.
"It is a matter of policy. We decided not to grant further time. Instead, we asked the company to set up a manufacturing base," the source said.
Now, the company has come back and said that the manufacturing of the product is not possible in India, because the requisite design and technology inputs are not available in the country.
"For two years, the company was test marketing the products. Now it says it cannot manufacture the products in India. This is not in tune with the FDI policy. So we are asking all administrative ministries to give their comments on any test marketing proposal after taking into consideration the viability of manufacturing plans," the official said.
In principle, the government does not permit import and marketing of products other than high-technology products, low-volume engineering products and those concerning medical research.
Wholesale trading of goods is permitted, but the company cannot directly market the products to end-users. It has to go through retailers.