11 Feb : Giving scope to foreign firms to increase equity in their Indian joint ventures, the government has changed FDI policy and excluded indirect investment through domestic companies from overall sectoral ceilings.
The decision to change the FDI policy guidelines was taken by the Cabinet Committee on Economic Affairs (CCEA).
"The foreign investment through (an) investing Indian company would not be considered for (calculating) the indirect foreign investment in (the) case of Indian companies ‘owned and controlled’ by resident Indian citizens and Indian companies owned and controlled ultimately by resident Indian citizens," a new guideline says.
Asked what the objective of the changes in the FDI policy was, Home Minister P Chidambaram said, "The objective is to make (FDI policy) simple and transparent, according to the Department of Industrial Policy and Promotion (DIPP)."
In another amendment, the CCEA decided that government approval would be required for transferring the ownership of an Indian company that has a joint venture with a foreign firm in any sector covered by FDI caps.
The CCEA approval of changes in FDI norms follows the recommendations of a group of ministers headed by External Affairs Minister Pranab Mukherjee.
In case the joint venture is between a foreign firm and an ‘investing company’ that is ‘owned and controlled’ by an overseas entity, the stakes of both the companies (the foreign firm and the overseas entity) will be added to arrive at the overall cap, according to the new rules.
"The adoption of these guidelines…will facilitate greater foreign capital inflows and send a positive signal in the present difficult economic scenario," the official statement issued after the CCEA meeting said on Wednesday.
It said transferring ownership or control of Indian companies in sectors with caps from Indian citizens to non-resident entities would require the approval of the Foreign Investment Promotion Board (FIPB).
At present FDI rules work like this. For instance, in a telecom joint venture ‘A’, the present guidelines would not allow a foreign partner to exceed, say, 60 percent (despite the FDI cap of 74 percent) in case the domestic partner’s own equity structure has FDI that indirectly works out 14 percent in ‘A’.
With changes in the rules, the foreign partner in venture ‘A’ can increase its stake (within the 74 percent) since the indirect FDI holding will not be taken into account while calculating the overall ceiling.
Govt infuses Rs 3,800 cr in 3 banks to raise capital adequacy
The government on Wenesday announced a Rs 3,800-crore fund infusion into state-run lenders – UCO Bank, Central Bank of India and Vijaya Bank – to shore up their capital adequacy.
Under the recapitalisation package Central Bank of India will get Rs 1,400 crore, while UCO Bank and Vijaya Bank will get Rs 1,200 crore each, Home Minister P Chidambaram told reporters after the cabinet meeting.
The capital infusion would be done in two tranches, he said, adding the first tranche would be made available during the current fiscal and the remaining in 2009-10.
As part of the first tranche, UCO Bank will get Rs 450 crore, while Central Bank of India and Vijaya Bank will get Rs 700 and Rs 500 crore, respectively, in the current fiscal.
Spelling out the reason for the capital infusion, Chidambaram said, this will help banks raise capital adequacy over 12 per cent much above the Basel II norms of 9 per cent.
In the next tranche, UCO Bank will get Rs 750 crore, while Central Bank of India and Vijaya Bank to get Rs 700 crore each, he said.
The amount would be form a part of Tier I Capital, he said, adding the infusion would increase the government holding in the three state-run banks.
The increase in the government’s holding in these banks would depend on the instruments that they subscribe to, Chidambaram said, adding, such decisions would be taken by respective boards.
Under Tier I, banks can raise capital as equity and innovative instruments like perpetual non-cumulative preference shares and perpetual bonds.
The government holding in Central Bank of India currently stands at 80.20 per cent, UCO Bank 75.98 per cent, while in Vijaya Bank it is 53.87 per cent.
When asked whether these banks would be allowed to tap the primary market, Chidambaram said, accessing capital market is not a viable option."
Last year in November, the government restructured the capital structure of UCO Bank by converting Rs 250 crore equity into preference shares, to enable the bank raise fund in the market when required.
This conversion of equity into perpetual non-cumulative preference shares is in accordance with RBI circular dated 29th October, 2007.
Govt clears Rs 1,206 cr road project
The Government has gave its nod for the Rs 1,206 crore four-laning of the Madhya Pradesh/Maharashtra Border-Nagpur section under the National Highway Development Programme (NHDP), Phase II.
The project, cleared by the Cabinet Committee on Economic Affairs (CCEA), would be implemented on a build-operate-transfer basis at an estimated cost of Rs 1,205.52 crore.
The Government would provide viability gap funding, which will not exceed 40 percent of the project cost.
The concession period for the project will be 27 years, including the construction period of 910 days, Home Minister P Chidambaram said while briefing on the decisions of the CCEA.
Govt to incentivise conversion into gas-based urea units
The government on Wednesday approved a policy to offer compensation to urea plants running on other fuels for conversion into gas-based units.
"The new policy provides for a special fixed cost towards reimbursement of the cost of conversion to the urea unit after its conversion to the gas is completed," Home Minister P Chidambaram said, briefing about decisions taken at the meeting of the Cabinet Committee of Economic Affairs (CCEA) at New Delhi on Wednesday.
The conversion of such units will increase the efficiency of urea output and add to the use of natural gas, which is the most efficient and a cleaner fuel for the production of urea, Chidambaram explained.
The government has also approved to provide some leeway to restart naphtha-based facilities if they take to gas as the feedstock before March next year.
"It (CCEA) has also approved restart of existing naphtha-based units, which are under shutdown, on naphtha, provided they convert to gas before March 2010, as is necessary for other operational naphtha-based units," the minister said.
The CCEA has also given its go-ahead for a special dispensation under the new pricing scheme to restart urea output from the Trombay-V unit of the Rashtriya Chemicals Ltd, which has remained closed for over four years.
Govt approves revival package for Instrumentation Ltd
The government has approved a Rs 652.72-crore revival package for state-run Instrumentation Ltd (IL) based in Kota.
The revival package approved by the Cabinet Committee on Economic Affairs (CCEA) includes cash infusion of Rs 103.36 crore and waiver of government loan and interest, amounting to Rs 504.36 crore, besides a Rs 45-crore government guarantee.
IL was established in 1964 as a fully-owned central pubic service enterprise to cater to automation and control for process industry.
The company manufactures and supplies to various industries such as power, steel, fertiliser, chemical, petrochemical, refineries, pharmaceutical, cement and textile.
The company’s manufacturing facilities are based at Kota and Palakkad in Kerala.
Flow elements, control valve and actuators are manufactured at Palakkad plant other items are manufactured at Kota plant.
Govt to construct more bungalows in Netaji Nagar and Moti Bagh
In order to address shortage of general pool residential accommodation in the capital city, government has approved the redevelopment project for construction of 492 units.
The construction, set to be undertaken by the National Building Construction Corporation (NBCC) for the redevelopment of the Netaji Nagar and Moti Bagh project, would have a total estimated cost of Rs 433. 67 crore.
The project cost is being met from the three acre of land auctioned on freehold basis for commercial utilization on 25th April 2007. The auction had led to realization of Rs 611 crore.
According the decision taken by the Cabinet Committee on Economic Affairs (CCEA) on Wednesday, the project when completed will provide 14 type VIII bungalows, 102 type VII bunglaows and 376 type VI houses in multi-storey apartments with houses for economically weaker section, sufficient parking area and other facilities.
Within the project area, a large green area has been envisaged to preserve the green environment.
Besides, minimum number of trees have been cut and compensatory planting of trees has also been undertaken for the project.