The government has rejected three high-profile foreign investment proposals. Cargill's proposal to get into commodity exchange brokerage, Universal Leaf Tobacco Company's bid to enter tobacco trading and ChrysCapital's plans to pick up a 12.89 per cent stake in Development Credit Bank have all been turned down by the government for different reasons.
The three proposals together entailed an investment of about Rs 250 crore (Rs 2.5 billion).
Cargill Holding had proposed to set up a non-banking finance company, which would undertake commodity exchange brokerage.
Though FDI up to 100 per cent is allowed in NBFC activities subject to fulfilment of minimum capitalisation norms, Cargill's proposal hit a roadblock as commodity exchange brokerage does not come under the activities permitted for the non-banking finance companies.
The Reserve Bank of India also does not support 100 per cent or significant foreign investment in commodity exchange broking firms. In the case of Olam Exports (India), the RBI had disapproved of foreign investments in any form in commodity exchange broking firms.
ChrysCapital's plans to acquire a 12.89 per cent stake in Development Credit Bank for Rs 35 crore (Rs 350 million) has also been rejected due to RBI's objections.
Development Credit Bank, the RBI pointed out to the Foreign Investment Promotion Board, had put up another proposal with the Central Bank to allot equity to the Aga Khan Fund for Economic Development. This proposal was approved by the RBI on March 28, 2005 subject to certain conditions.
The RBI said till the conditions prescribed in its approval were fulfilled, it did not favour any proposal for fresh infusion of capital in Development Credit Bank Ltd. As a part of the deal, ChrysCapital was to acquire over 6,50,000 shares of Rs 10 each in the bank at a premium of Rs 45.
The investment proposal of Universal Leaf Tobacco was rejected after the agriculture ministry objected to it. The ministry was of the view that India was one among the first to enact a strong national law for tobacco control in April 2003 and such a proposal promoted the use of tobacco.
"Any fresh foreign investment in the tobacco sector would lead to further growth of the tobacco sector in India; thereby worsening the public health threat," the ministry pointed out.
Although the present foreign investment policy permits foreign equity up to 100 per cent in cigarettes manufacturing, no proposal for FDI in cigarettes has been approved by the government in the last few years.
