New norms ease foreign investment in commexes

The Government has changed foreign investment norms for commodity exchanges, non-banking finance companies, retail, pharma and foreign institutional investors.

The norms also seek to disincentivise import of second-hand capital goods.

COMMEXES

In commodity exchanges, there is a composite foreign investment cap of 49 per cent (FDI limit of 26 per cent and FII ceiling of 23 per cent). This needs the Foreign Investment Promotion Board (FIPB) approval.

However, from now on the FIPB nod is required only for the FDI component and not the 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.

NBFCs

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

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

FIIs

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.

This 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.

The new norms clarified that this change (to the sectoral cap) will be also subject to prior intimation to the Reserve Bank of India.

RETAIL & PHARMA

The policy has incorporated the earlier released Press Note on single brand retail trading, which had increased the FDI limit in the sector from 51 per cent to 100 per cent under the Government route, subject to conditions such as 30 per cent local sourcing.

In pharma, 100 per cent FDI is allowed through the automatic route in greenfield projects, while the same amount of FDI is permitted in existing companies but with Government approval.

SECOND-HAND MACHINERY IMPORTS DISCOURAGED

At present, issue of equity shares under the FDI policy is allowed under the Government route for import of capital goods/ machinery/ equipment -- including second-hand machinery -- subject to compliance with certain following conditions.

However, the Government said it received representations claiming that the domestic capital goods sector (including the machine tools industry, construction machinery 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 hi-tech technology, compliant with international standards, in terms of being green, clean and energy efficient.

The FDI policy also incorporated the latest SEBI norms for investment by foreign venture capital investors and qualified financial investors. In addition, the liberalised policy on transfer of shares/ convertible debentures of companies engaged in the financial services sector has now been reflected under the FDI policy.

The consolidated FDI policy document will from now on be released only annually instead of once every six months. The next version of the consolidated FDI Policy would be released on March 29, 2013.

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