The government has tweaked foreign investment norms for commodity exchanges,non-banking finance companies,and foreign institutional investors. The new norms,announced on Tuesday,also aim to disincentivise import of second-hand capital goods.
In case of 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),which needs Foreign Investment Promotion Board (FIPB) approval. With the change in the norms,the FIPB nod would be 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.
For second-hand equipment imports,issue of equity shares under the current FDI policy is allowed under the government route for import of capital goods and equipment including second-hand machinery subject to compliance with certain conditions. However,the government has now excluded second-hand machinery 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 move comes after the government received industry 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.
The FDI policy has 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 and convertible debentures of companies engaged in the financial services sector has now been included 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. The new norms have also changed FII investment norms.
At present,the Portfolio Investment Scheme limits the individual holding of an FII to 10 per cent of a companys 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 RBI.