Mahindra's defence JV proposal shot down

The Foreign Investment Promotion Board (FIPB) has rejected a proposal by Mahindra Defence Systems to set up a 51:49 joint venture (JV) company with British defence multinational BAE Systems to develop and manufacture artillery and other defence equipment. This was stated in a Finance Ministry statement today.

Mahindra Defence Systems and BAE Systems — the world’s fourth biggest arms company — had applied jointly to the FIPB in April this year for permission to set up a JV in which BAE Systems would have held 49 per cent of equity and Mahindra Defence Systems the rest. The Mahindra and BAE joint venture with a 51:49 would have been a first for the Indian defence sector and it envisaged an inflow of around Rs 56 crore. However, the cap on FDI in defence production is 26 per cent and probably this was the reason for the proposal to get rejected.

The FIPB had met on September 30 to consider this and several other investment proposals. Today’s statement said Finance Minister P Chidambaram has approved 16 FDI proposals worth Rs 795 crore relating to various ministries including commerce, tourism, economic affairs, information and broadcasting, and heavy industry. These include the Mumbai-based Asia Motorworks’ plan to induct foreign equity by way of subscribing to fully and compulsorily convertible debentures and conversion of operating company into an operating cum holding company. This proposal involves FDI worth Rs 590 crore.

Meanwhile, decision on seven investment proposals has been deferred. These include Adani Power’s proposal to convert an operating company into an operating cum holding company to make downstream investments. Another proposal deferred was by Germany’s ZF Friendrichsafen AG to set up a new joint venture for making rubber and rubber-to-metal parts for automotive, agriculture, construction machinery and railway.

A proposal by the Asset Reconstruction Company of India Ltd to induct a new foreign collaborator and increase the foreign equity participation from 5 per cent to 14.66 per cent was also deferred. Also put on hold was Amar Ujala Publications proposal of amalgamation of two companies consequent upon the order of high court and induction of fresh FDI.

Two proposals including one by ABN-AMRO Securities and Tata Motors, as well as another by the Hyderabad-based Krishnapatnam Port Company have been recommended for the consideration of the Cabinet Committee of Economic Affairs, as the investment involved in the proposal is above Rs 600 crore.