Cabinet Clears 2 Foreign Direct Investment Proposals Worth Rs 7,800 cr.

At a time when the decline in foreign direct investment (FDI) into the country is raising eyebrows, the government on Tuesday cleared two deals worth Rs 7,800 crore, almost equal to the average monthly FDI inflows.

FDI inflows totaled Rs 22,058 crore in the first 10 months of the fiscal, which is about a quarter less than the Rs 28,548 crore it received in the year-ago period. The Cabinet Committee on Economic Affairs in its meeting has approved a proposal for Rs 4,500 crore FDI in Hero Investments Pvt Ltd, one of the main shareholders in the country’s largest two-wheeler maker Hero Honda, by two private equity firms. The proposal was recommended to the CCEA by the Foreign Investment Promotion Board in February, 2011.

In December last year, the promoters of Hero Investments — the BM Munjal family, had agreed to buyout the entire 26 per cent stake of Japan’s Honda in Hero Honda for Rs 3,841.83 crore. Two private equity firms, BC India Investors II, a part of Bain Capital, and Lathe Investment Pvt Ltd, would together pick up a 29 per cent stake in Hero investments for Rs 3,650 crore to help pay for the deal.

The CCEA also approved FMCG giant Reckitt Benckiser’s plan to invest around Rs 3,300 crore via a subsidiary to fund its acquisition of Paras Pharmaceuticals Ltd. As part of its expansion plans in India, Reckitt Benckiser had in December last year agreed to fully acquire Ahmedabad-based Paras Pharmaceuticals Ltd for Rs 3,260 crore. The shares of the new subsidiary will be 100 per cent subscribed by Reckitt Benckiser (Singapore) (entire equity except 10 shares) and R&C Nominees Limited (10 shares), an official statement said.

Declining FDI inflows into the country have become a major worry for the government, especially at a time when the country’s current account deficit has touched a high of 4.1 per cent of the GDP in the second half of the fiscal. India’s dependence on foreign institutional investors or what is also termed as hot money has increased for funding the CAD. The drop in FDI inflows is attributed to the financial troubles in several European economies and the government is hopeful that it would improve in the new financial year. Finance minister Pranab Mukherjee had earlier said that the government was working to liberalise norms for FDI, as opening sectors such as retail and insurance are crucial for sustaining growth.

Source : indianexpress.com