The Industry Ministry on Tuesday came out with a consolidated foreign direct investment (FDI) document incorporating significant changes in the FDI norms by permitting foreign institutional investors (FIIs) to invest up to 23 per cent in commodity exchanges without prior approval and withdrawing facility of giving equity in lieu of import of second hand equipment in order to discourage import of sub-standard machinery.

According to a notification issued by the Department of Industrial Policy and Promotion's (DIPP's) on consolidated FDI policy, the Government has decided to liberalise the policy and to mandate the requirement of Government approval only for FDI component of the investment. Such investment by FIIs, in commodity exchanges, will, therefore, no longer require Government approval. This change aligns the policy for foreign investment in commodity exchanges, with that of other infrastructure companies in the securities markets, such as stock exchanges, depositories and clearing corporations.

The Government also issued a clarification on Non-Banking Finance Companies (NBFC) stating that the activity of ‘leasing and finance,’ which is one among the 18 NBFC activities, where induction of FDI is permitted, covers only financial leases and not operating leases. This provision intends to clarify the coverage of the term ‘leasing and finance’, in so far as the NBFC sector is concerned.

On the issue of FIIs investment in commodity exchanges, the notification said such investment of up to 23 per cent by FIIs, in commodity exchanges, will, therefore, no longer require Government approval. However, foreign direct investment (FDI) will continue to need the approval of the FIPB. At present, foreign investment, within a composite (FDI and FII) cap of 49 per cent, under the government approval route is permitted in commodity exchanges.

DIPP also announced that the consolidated FDI circular will be announced every year instead of six-monthly basis. The next policy would be on March 29, 2013. The policy also clarified that subject to the sectoral foreign holding cap, companies will now need prior permission from Reserve Bank of India (RBI) for an overall FII holding of beyond 24 per cent. After RBI permission, the companies can allow FIIs to hold more than 24 per cent after the approval for the same by their boards and shareholders.

``With a view to incentivise machinery embodying state-of -the-art technology, compliant with international standards, in terms of being green, clean and energy efficient, second-hand machinery has now been excluded from the purview of this provision,’’ the notification said.


Moderation in FDI flow worries Reserve BankApril 12, 2012