The government on Thursday approved Swedish truck major Volvo's FDI proposal to invest $275 million (over Rs 1,150 crore) in their joint venture with commercial vehicle manufacturer Eicher Motors [Get Quote].

"The Cabinet Committee on Economic Affairs on Thursday gave its approval to Aktiebolaget Volvo, Sweden, to invest 45.6 per cent in the paid-up equity share capital in a new joint venture company Eicher Motors India Ltd," an official spokesperson said.       

While the commercial vehicle business of Eicher Motors Ltd will be transferred to the joint venture company Eicher Motors India Ltd, the sales and distribution network of Volvo India will also be merged with the JV firm, he said.

The approval to bring in the FDI is subject to compliance with RBI and SEBI guidelines, besides subjected to approval of the relevant high courts for the demerger of distribution business of Volvo India, he said.

"Eicher shall be holding the balance 54.4 per cent equity of the company and shall act as an operating cum holding company," the spokesperson said.

The finance ministry had already approved the FDI proposal of Volvo to invest $30 million (Rs 123 crore) for induction of foreign equity up to 8.1 per cent by way of acquisition of shares in EML.

Earlier in May the two partners had formalised the JV. Volvo by virtue of its separate investment in EML for 8.1 per cent stake, would have an economic interest of 50 per cent in the joint venture.

As a part of the agreement, Volvo would transfer its Indian truck distribution and service network business to the joint venture company.

Eicher on its part would transfer commercial vehicles business along with related components and design services to the joint venture company, which would be an unlisted subsidiary of EML.

The joint venture would manufacture and market independent Eicher and Volvo branded trucks with the former focussing on 5-50 tonne trucks and the latter on heavy duty trucks.

The JV would also look at exporting Eicher brand of commercial vehicles in countries where Volvo has a distribution network to complement the Swedish CV major's heavy truck portfolio.

Volvo had announced that its truck projects in India would be routed through the JV and may also look at entering the commercial vehicles financing business.