Indian Firm Out Of FDI Cap - Feb 12, 2009

The foreign investment through investing Indian company will not be taken into account in determining the sector FDI cap, the government said. As per the revised norms, the equity investments routed through companies in which the majority ownership and control is in the hands of Indians would be treated as fully domestic equity. These changes are approved by the Cabinet Committee on Economic Affairs (CCEA) in the guidelines for calculating the total foreign investment, direct and indirect in Indian companies. The objective of this move is to make it simple as well as transparent.

Budget To Stimulate Investment, Growth: Chidambaram

New Delhi: Finance Minister P Chidambaram on Feb 29 said the Union Budget for 2008-09 would stimulate investment and consequently growth, while pointing out that he had done the best through the budgetary exercise by providing credit facilities to the farm sector. Credit is only one element of the story in the farm sector. I provided more credit. Budget can only address credit side and the farm sector has not done too bad this year, he said in his post-Budget comments. The Finance Minister had announced debt waiver and relief worth Rs 60,000 crore to small and marginal farmers in the Budget, the last full financial statement before the general elections in 2009. This Budget will stimulate investment and growth and that growth will create wealth. The economy is growing by eight per cent, people have become more tax compliant and they are willing to pay taxes, he said on the buoyancy in government''s revenues.

Investment In Agri Vital To India: World Bank

NEW DELHI: Greater investment in agriculture in transforming economies like India is vital to the welfare of 600 million rural poor, mostly in Asia, says the latest World Development Report (WDR) of the World Bank.

Presenting the India highlights of the report here on Friday, WDR co-author Alain de Janvry said there was "much mis-spending on agriculture" in India, with investments accounting for only 25 percent of public expenditure, while subsidies took up 75 percent.

J&K Industry To Receive Rs 28,000cr Investment

New Delhi: With an aim to develop industry and create employment in Jammu and Kashmir, the state government is poised to get an investment of Rs 28,000 crore, with export potential of around Rs13,000 crore, by 2012. This biggest-ever investment from outside the state would create employment for at least 2.5 million. The main sectors which will get investment include agro-based industries, floriculture, and handicrafts.

Soaring PE Flows Must Get Portfolio Investment Tag: EAC

NEW DELHI: Private equity (PE) flows, which stood at $17 billion in 2007, should be treated as portfolio investment, feels the government’s key economic policy think-tank, the Prime Minister’s Economic Advisory Council (EAC). The panel has highlighted the lack of clarity on this count and called for simplification.

“PE investment inflows have also been quite large. Since in most cases PE flows constitute less than 10% of the capital of the company being invested in, they should ideally be reported under portfolio capital, and not under FDI,” the EAC said in the review of economy for 2007-08.

While the EAC assumes that PE funds act like portfolio investors, ground realities point to a different scenario. In such cases, the investment is more like FDI rather than a portfolio investor. There are cases of PE funds taking management control of companies in a bid to improve financial performance even in case they do not have a majority stake. Blackstone, for example, took over Gokaldas Exports, a large player in the readymade garments segment. Similarly, Actis runs Punjab Tractors and Phoenix Lamps while ICICI Ventures manages RFCL. India Value Fund, another PE, holds the reins at Shringar Cinema.

The EAC review points out that in the first quarter of 2007-08, there was a difference of $2.5 billion between the sum of net purchases by foreign institutional investors and overseas equity issuance by Indian companies though ADRs and GDRs. It feels the differences could be on account of PE investments since many PE investors are registered under common ownership of registered FIIs.

With the overall capital inflows being pegged at $103 billion, much higher that the council’s own July 2007 projection of $58 billion, the think-tank has recommended continued use of sterilisation to counter the excess flows in the remaining part of 2007-08.

The EAC had suggested a three-pronged approach to deal with large inflows in the economic outlook released in July: allowing rupee to appreciate, absorbing capital and sterilising imposing policy restrictions and facilitating outflows. The total foreign investment is estimated at $27.8 billion, a little more than first half of the current fiscal. However, the total surplus on capital account is estimated at $103 billion, or 8.7% of the GDP, in 2007-08, significantly higher than the $58 billion projected in July 2007 outlook.

Since this would put pressure on the rupee to rise, the council has advised the government to give clear signals to industry to make adjustments alongwith a transitional package.

“Clear signals should be given to industry to make adjustments through productivity increases and to tap the booming domestic market. However, some transitional packages targeted at labour-intensive industries may be called for,” it said.
EAC chairman C Rangarajan also pointed that the capital flows may see some tempering in the next fiscal in the backdrop of developed economies witnessing recessionary trends due to subprime crisis.

The government has taken various steps to counter flows including tightening external commercial borrowings, clamping down on investments through participatory notes and liberalising remittances.