Relaxed norms to give fillip to FDI

The DIPP has relaxed FDI norms in order to enhance the dwindling share of FDI in India and has permitted companies to prescribe a formula for transforming convertible instruments (such as debentures, partly paid shares and preferential shares, among others) into equity at market conversion, but in accordance with the guidelines of FEMA and SEBI. New changes include allowing overseas firms in existing JVs to operate simultaneously in the same business segments. Earlier, overseas companies needed the prior approval of their Indian partners.

Henceforth, the companies will be classified into two categories - 'companies owned or controlled by foreign investors' and 'companies owned and controlled by Indian investors'. The DIPP has removed the earlier categorisation of 'investing companies', 'operating companies' and 'investingcum- operating companies'.

However, policy changes regarding FDI in the multibrand retail sector is still under consultation process.

FDI Inflows

FDI inflows have been on a downside for the past few months. During the first ten months of the last fiscal (April-January 2010-2011), FDI inflows into India slipped by 25 per cent to $17 billion (approx Rs 77,902 crore). India had received $22.9 billion (approx Rs 1,09,668 crore) in FDI during April-January 2009-10. Mauritius remained the top contributor with Rs 2,38,876 crore of FDI with 42 per cent share in the country's total FDI received so far followed by Singapore and USA. The Services sector attracted Rs 1,18,923 crore of FDI and accounted for 21 per cent of the country's total FDI during April-January 2000-2011.

FIPB Clearances

In March 2011, the CCEA cleared two FDI proposals with a cumulative value of Rs 7,800 crore. The CCEA gave its nod to Rs 4,500 crore FDI in Hero Investments, a move that will help the Hero group buy out partner Honda Motor Company's stake in their JV Hero Honda Motors. The private equity firms, BC India Investors II, a part of Bain Capital, and Lathe Investment, will together acquire stake in Hero Investments. Also, it approved Reckitt Benckiser's Rs 3,300 crore investment via a subsidiary to fund its acquisition of the Ahmedabad (Gujarat) based Paras Pharmaceuticals. During the month, the Union Ministry of Finance, on the recommendations of the FIPB, ratified 14 FDI proposals worth Rs 1,289.85 crore.

The proposals include that of Kolkata based Dhunseri Investments project worth Rs 715 crore where the company will issue and allot equity shares to the non-resident shareholders consequent upon demerger. Likewise, a proposal of Mauritius based Ghir Investments worth Rs 530 was given a go-ahead.

The other proposals which got the FIPB nod include that of Pipavav Shipyard, Gujarat, to undertake additional activity relating to defence sector. Kyuden International Corporation, Japan, also got the clearance to set up a JV investment company. The FIPB, however, deferred decisions on 27 proposals, including that of Essar Capital Holdings and Forbo Holding AG, Lindenstrasse, Switzerland.