FII norms for commexes relaxed

New Delhi: After much dithering, the government released the revised consolidated foreign direct investment (FDI) policy on Tuesday, relaxing norms of investment by foreign institutional investors (FIIs) in commodity exchanges. Now, FIIs will not require government approval to invest in these exchanges. The cap on FII investment, however, remains at 23 per cent.

The department of industrial policy and promotion (DIPP) under the commerce and industry ministry said government approval would nonetheless be required for the FDI component of investment up to 26 per cent in commodity exchanges.

“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,” DIPP said.

Experts feel the earlier provision of FIIs getting approval from the Foreign Investment Promotion Board (FIPB) was a redundant exercise.

Akash Gupt, executive director at PricewaterhouseCoopers, said the particular provision was creating problems for those who intended to go for a share sale. “There is no need for FIPB approval, as it goes through Sebi (the Securities and Exchange Board of India) anyway. This was creating an anomalous situation for anyone who was going for an initial public offering.”

On the other hand, the FDI policy for single-brand retail was left untouched and was incorporated into the revised consolidated FDI policy as earlier approved by the Cabinet. Even after severe pressure from several global brands such as IKEA, the government retained the clause of mandatory 30 per cent sourcing from Indian small and medium enterprises (SMEs) with a total investment in the plant and machinery of less than $1 million. The clause is mandatory for companies going beyond 51 per cent FDI in single-brand retail.

DIPP also excluded the import of second-hand machinery from conversion to equity, in the wake of several complaints from the capital goods sector, which had been suffering due to the import of cheaper second-hand machinery.

“With a view to incentivising 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,” DIPP said.

Earlier, conversion to equity was permitted for import of even second-hand machinery.

“This is a good step because earlier there was no check on the quality of second-hand machinery being imported. This provision would now help put a check on the import of such cheap machinery,” said Krishan Malhotra, executive director, KPMG.

The policy would now be reviewed once a year, instead of every six months as earlier.