The government plans to sign off on 49% foreign investment in commodity exchanges.
The structure of foreign investment in the commodity exchanges will be on the same lines as that of stock exchanges: comprising a maximum 26% foreign direct investment (FDI) and 23% from foreign institutional investors (FII).
The restriction on the holdings by any single entity will also be the same, with no single FII or FDI allowed to hold more than 5% stake in such exchanges.
A top official of the ministry of consumer affairs, the nodal ministry that regulates commodity exchanges through the forward market commission, told Mint that they would be forwarding the proposal to the Reserve Bank of India (RBI) within a week to 10 days.
“The ministry is working on the process and FDI norms will be exactly along the same lines as stock exchanges,” said the official, who didn’t want to be named. “This makes sense as commodity exchanges are bodies parallel to that of stock exchanges and have similar functions.”
Ministry officials said there was no need to obtain cabinet approval for allowing FDI in the commodity exchanges, saying that it can be done on the same lines as that for stock exchanges—by way of a notification.
The ministry isn’t waiting for the recommendations of the Abhijit Sen-led committee on the futures market before notifying the FDI norms in the exchanges.
“The two issues are not directly related and, therefore, we do not have to wait for the report,” the official said. The Sen committee is expected to submit its report by the end of the month.
Finance ministry officials said they were of the view that FDI in commodity exchanges should initially be the same as that allowed for stock exchanges.
“We had some internal discussions and the general view is that, initially, not more than 49% should be allowed. If the limit is found to be low, then the same can be increased at a later stage,” said an official.
Commodities exchanges have been anxiously awaiting the formal announcement.
“FDI will get global technological and exchange management know-how, which will help professionalize Indian exchanges,” said P.H. Ravi Kumar, managing director, National Commodity and Derivatives Exchange. However, he added that given the sensitivity of commodity exchanges, the government should move cautiously on further relaxing the cap on FII.
RBI, on 22 December, had allowed foreign investment of up to 49% in stock exchanges, with FDI cap at 26% and FII limit at 23%. The Securities Exchange Board of India has stipulated the investment limit for a single foreign investor at 5%, beyond which an FII or any other investor, like foreign stock exchanges, cannot raise its stake in stock exchanges.
There are three major national commodity exchanges: the MCX (multi-commodity exchange), the NCDEX (national commodity and derivatives exchange) and the National Multi Commodity Exchange of India (NMCEIL).
Currently, Goldman Sachs holds a 7% stake in NCDEX through the FDI route and Fidelity holds 9% in MCX through the FII route. Interconnect Exchange is considering picking up 8% in NCDEX.
Once the new policy is put in place, these investors will have to reduce their stakes to 5% or less.