New edition of India's consolidated FDI policy says Govt nod not needed for FII investment in commodity exchange

New Delhi, Apr 11 (PTI) Streamlining the procedure to boost foreign investment into the country, the Indian government has allowed FIIs to invest up to 23 per cent in commodity exchanges without seeking its prior approval. Besides, to discourage import of sub-standard machinery, the government decided to withdraw the facility of giving equity in lieu of import of second hand equipment,according to the new edition of the consolidated FDI policy, which came into effect from Tuesday. The policy document has been produced by the Department of Industrial Policy and Promotion (DIPP). The government has also made certain other procedural changes in the circular and incorporated announcements made with regard to 100 per cent FDI in single brand and relaxation of guidelines for pharmaceutical sector. As regard the commodity exchanges, at present, foreign investment, within a composite (FDI and FII) cap of 49 per cent, under the government approval route is permitted in commodity exchanges. "Such investment (up to 23 per cent) by FIIs, in commodity exchanges, will, therefore, no longer require Government approval," it said. However, FDI will continue to need the approval of the FIPB. "It has now been decided to liberalise the policy and to mandate the requirement of government approval only for FDI component of the investment," it said. DIPP has also decided that the consolidated FDI circular will be announced on a once a year basis instead of every six months. The next policy would be on March 29, 2013. Experts said that there were no major changes in the circular. "DIPP has done only procedural changes," PwC executive director Akash Gupt said. The policy has clarified that subject to the sectoral foreign holding cap, companies will now need prior permission from the Reserve Bank of India for an overall FII holding of beyond 24 per cent. After RBI permission, the companies can allow FIIs to hold more than 24 per cent after the approval for the same by their boards and shareholders. In order to discourage import of sub-standard machinery, the government has decided to withdraw the facility of giving equity in lieu of import of second hand equipment. "With a view to incentivise 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," it said. In March last year, relaxing the rules for FDI in the country, the government had allowed issuance of equity to overseas firms against imported capital goods and machinery including second-hand machinery. Industry has raised concerns with the government that the Indian capital goods sector, including the machine tools industry, construction and textile machinery, has been suffering because of import of cheaper second hand machinery, which is often sub-standard. During April-January period of India's 2011-12 fiscal, the country attracted FDI worth USD 26.19 billion, a 53 per cent increase over the same period of the previous fiscal. PTI