The Hindu Business Line : Govt allows FDI in commodity exchanges

Rules relaxed
Cabinet approves hiking equity cap to 49% (from the existing 26%) with prior approval of the FIPB.
However, it does not envisage dilution in the existing PSUs.
In trading and marketing of petro products, the Cabinet waives-off a condition of compulsory divestment of up to 26% in favour of Indian partner/public within five years.

Our Bureau

New Delhi, Jan 30 The Government on Wednesday liberalised the foreign direct investment (FDI) cap across various sectors including public sector oil refineries, while allowing foreign investment in areas such as commodity exchanges and credit information companies (CICs).

In the case of petroleum refining by PSUs, the Union Cabinet has approved hiking the equity cap to 49 per cent (from the existing 26 per cent) with prior approval of the FIPB.

However, it does not envisage dilution in the existing PSUs.

Also in the case of trading and marketing of petroleum products, the Cabinet has waived-off a condition of compulsory divestment of up to 26 per cent in favour of Indian partner/public within five years.

FDI In refining

While FDI up to 100 per cent through automatic route is allowed for private companies, in the case of PSUs, there was a cap of 26 per cent. Today’s decision would ease the entry of foreign players in the refining sector in partnership with PSUs.

The move assumes significance in the backdrop of the interest envisaged by foreign companies such as Kuwait Petroleum for forging alliances with new refining projects of state owned refiners.

FDI up to 26 per cent and the FII up to 23 per cent has been allowed in commodity exchanges subject to the condition that no single investor would hold more than five per cent.

The move is in sync with the stance of the Department of Economic Affairs that there should be separate caps within the overall cap of 49 per cent for the FDI and the FII investment at 26 per cent and 23 per cent, respectively.

Industrial parks

However, DIPP had said there was no justification for imposing separate caps on the FDI and the FII within the overall foreign investment cap.

The Cabinet also decided to exempt foreign investment in industrial parks from the provisions of Press Note 2 (2005) that stipulates conditions such as minimum capitalisation and a three-year lock in.

Similarly, in case of construction development projects, investment by registered FIIs under the portfolio investment scheme would be distinct from the FDI and outside the provisions of Press Note 2 (2005).

Besides the minimum capitalisation of $10 million for the wholly-owned subsidiaries and $5 million for joint ventures with Indian partners, the Press Note 2 specifies that original investment cannot be repatriated before a period of three years from completion of minimum capitalisation. It also stipulates other conditions such as minimum area to be developed.

More Stories on : Foreign Direct Investment | Policy | Commodity Exchanges

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