The Italian government, through its economy & finance ministry, controls a 30.2 per cent stake in Finmeccanica. Its subsidiary had late last year withdrawn an application to the Foreign Investment Promotion Board (FIPB) for setting up a JV, as Finmeccanica came under a cloud following allegations it paid kickbacks to get the Rs 3,456-crore chopper deal for AgustaWestland, another group company.
The return of Selex's proposal and the external affairs ministry's views are significant as these come against the backdrop of the government being forced to cancel the chopper deal in January this year, after a strong political outburst. Besides, the Central Bureau of Investigation (CBI) is investigating middlemen's role in the deal and the Bharatiya Janata Party (BJP), too, has raked up the issue of the ruling Congress party's alleged closeness to Italy.
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This could be a test case for FIPB, which has taken a more liberalised view since late last year, saying a proposal from a foreign defence company should not be rejected only because it, any of its group companies or its parent firm is being probed in the country or abroad. It has argued that the law should take its own course and the current FIPB consideration is without prejudice to any existing or future civil or criminal proceedings against the foreign investor or its parent company.
However, since the government has in this case taken a decisive action against the Italian company and cancelled its affiliate's chopper deal, it will be interesting to see how it deals with the new policy-making challenge. Selex's new application, filed in December, was slated for discussion at FIPB towards the end of March. The Department of Economic Affairs said in its comments that the shareholders should have to sign a legally-binding agreement, under which the largest Indian shareholder would always have to own a 51 per cent stake in the JV. The external affairs ministry conveyed in its comments that it had no objection from the "political angle". The comments of the home and defence ministries, which will be crucial, are still awaited, while the department of electronics and IT has said "no comments".
BJP has consistently attacked the Congress party for its alleged links with Italy - which allegedly started with the involvement of Ottavio Quattrochi, an Italian national, in the infamous Bofors scam. On the fallout of the AgustaWestland chopper deal, BJP has questioned the Congress-led regime and said no fair defence deal can take place because of proliferation of middlemen. It has sought a thorough probe of the deal so that middlemen could be booked, questioned the government for keeping quiet on the issue and opposed a Joint Parliamentary Committee (JPC) probe.
The party's prime ministerial candidate Narendra Modi has even gone so far as to suggest that the government was soft on the Italian marines who allegedly killed fisherman because of Congress President Sonia Gandhi's "closeness" to that country. A controversy was again stoked last month when an Italian court did not allow India to encash the Rs 2,360-crore bank guarantees that AgustaWestland had given under the conditions of the deal. This was seen as a major setback; India is expected to appeal against the decision. India had already encashed guarantees worth around Rs 240 crore from Indian banks.
In its application, Selex has said it wants to set up a JV in Tamil Nadu with Indian Teqsite, an Indian company that deals in airbone avionics and electronics systems. The Italian firm has proposed to hold a 26 per cent stake, while the rest is to be owned by the Indian partner. The proposed JV is to take a licence to manufacture defence electronics products. Besides individuals and employees of the company who are stakeholders, Oman India Joint Investment Fund has a 20 per cent stake in Teqsite.
WHAT'S THE ROW?
Feb 2013
- A controversy comes to light when Italian authorities arrest Giuseppe Orsi, CEO of Finmeccanica, AgustaWestland's parent company
- Defence Minister Antony orders probe into AgustaWestland chopper deal; CBI starts investigation
- FIPB decides a foreign defence firm's proposal should not be rejected because it, its group firms or its parent firm is being probed. Clears proposals of Elbit Advanced Systems (a JV between Bharat Forge and an Israeli firm) and Tata-AgustaWestland JV
- Finmeccannica arm Selex applies for setting up a JV with an Indian partner
- Govt scraps AgustaWestland chopper deal after facing political pressure
- BJP demands more probe, says middlemen should be booked; Modi attacks Sonia Gandhi for allegedly being soft on Italian marines