Govt upbeat on Unilever raising stake in India unit

In the wake of falling foreign investments, Unilever's move to increase stake in its Indian unit, Hindustan Unilever, was hailed by the government as bolstering confidence in Asia's third biggest economy, but many an expert have called for a closer look on why India has not been able to attract investments in new projects.

 "We should look it as a positive statement for the future of Indian economy, something which we have been saying. It is strong economy which has a very bright future and companies like Unilever making a statement of their faith in the economy," Secretary Economic Affairs, Arvind Mayaram said.

The Anglo-Dutch consumer goods firm Unilever Plc has increased its stake in the Indian arm Hindustan Unilever (HUL) to 67.28 per cent, following an open offer which commenced on June 21.

Analysts too hailed the offer as a welcome development but said the government needed to ponder why there were so meagre investments in greenfield industrial projects and what has come in has been dominated by deals to buy stakes in businesses that are already up and running, rather than in new projects.

BP invested $7.2 billion in 2011 to buy a stake in the oil and gas blocks operated by Reliance Industries. Vedanta Resources bought the Indian assets of Cairn for $8.7 billion in the same year.

Much earlier, Vodafone invested $11.1 billion in 2007 to buy a controlling stake in the mobile telephone business owned by Hutchison Whampoa.

Analysts also pointed to tough regulatory rules coming in the way of foreign companies evincing interest in India. According to Investing Across Borders, an initiative by the World Bank to measure competitiveness among countries in attracting foreign investments, the restrictions on foreign investment in India are much higher than the average in South Asia and even among the BRIC (Brazil, Russia, India, and China) countries.

The trouble involved in doing business in India caused by many redundant procedural requirements, as highlighted by the facts above, has become quite evident in recent times with the delay in retail FDI even after the go-ahead by the government despite widespread opposition across the country.