New policy discourages second-hand capital goods imports

Foreign investment in commodity exchanges will become easier now. Also, import of second-hand capital goods will become tougher, according to the foreign investment norms released on Tuesday.

The updated ‘Consolidated Foreign Direct Investment Policy Document' has also changed the norms for non-banking finance companies (NBFCs) and foreign institutional investors (FIIs).

COMMEXES

At present, there is a composite foreign investment cap of 49 per cent (FDI limit of 26 per cent and FII ceiling of 23 per cent) in commodity exchanges, which requires Government/Foreign Investment Promotion Board (FIPB) approval.

Now, FIPB nod will be required only for the FDI component, not for FII investment.

“This 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,” an official statement said.

SECOND-HAND MACHINERY

At present, issue of equity shares is allowed under the Government approval route for import of capital goods/ machinery/ equipment — including second-hand machinery — subject to certain riders.

The Centre said it received representations claiming that the domestic capital goods sector (including the machine tools industry, construction and textile machinery) has been affected by the import of cheaper and ‘sub-standard' second-hand machinery. Therefore, second-hand machinery has now been excluded from the purview of the policy to incentivise machinery with technology, compliant with international standards, in terms of being green, clean and energy-efficient.

The Government has clarified that the activity of ‘leasing and finance' (among the 18 NBFC activities where FDI is allowed) covers only ‘financial leases', not ‘operating leases'.

Currently, 100 per cent foreign investment in NBFCs under the 18 heads is allowed through the automatic route (without FIPB nod). Now, ‘operating lease' activity in NBFCs will not come under the automatic route.

FII investment norms have also been changed. At present, the Portfolio Investment Scheme limits the individual holding of an FII to 10 per cent of a company's capital and the aggregate for FII investment to 24 per cent.

The 24 per cent aggregate FII limit can be increased to the applicable (foreign investment) cap of the sector in which the company is operating, provided it is done through its Board resolution, followed by a general body special resolution.

This change (in the sectoral cap) will be subject to prior intimation to the Reserve Bank of India.

arun.s@thehindu.co.in

(This article was published on April 10, 2012)
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