The government will soon come out with a detailed foreign direct investment (FDI) norm for commodity exchanges with the Department of Industrial Policy and Promotion (Dipp) working on a policy for setting such norms.
The consumers affairs ministry, which regulates commodity exchanges through the Forward Markets Commission, had recommended a 49% cap on FDI. “We should be able to place a comprehensive policy before the cabinet in two-to-three weeks time. Some other FDI policies are also pending before Dipp and they are also likely to be finalized along with that on commodity exchanges,” a senior Dipp official, who did not wish to be named, said.
Dipp is the key government body for FDI clearances.
The structure of foreign investment in commodity exchanges is expected to be on the lines of stock exchanges: comprising a maximum of 26% 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 government official said the ministry had clearly stated that these limits be maintained. “It is now for Dipp and cabinet to take a call.”
Also, the DIPP official informed that it was too early to say what the final structure of the policy would be like. “We don’t know what changes the cabinet will make on the structure,” he said.
There are three major national commodity exchanges: Multi-Commodity Exchange of India Ltd (MCX), National Commodity and Derivatives Exchange Ltd (NCDEX) and National Multi-Commodity Exchange of India Ltd (NMCE). Both NCDEX and MCX already have foreign investments. While Goldman Sachs holds a 7% stake in NCDEX, Fidelity has 9% in MCX. Interconnect Exchange is talking to NCDEX to pick up an 8% stake. If the new policy entails restricting FDI and FII cap of a single entity to 5%, these investors will have to reduce their stakes.
To get a clarity on what comprises FII and FDI in individual cases, the finance ministry was consulted. “We have suggested a rough and ready measure to find out if an investor is an FII or not. Any investor registered with the Securities and Exchange Board of India (Sebi) as FII should straightaway be considered that. Accordingly, Goldman Sachs’ investment in NCDEX will not be considered FII,” said a finance ministry official. But Fidelity’s 9% in MCX is an FII investment.
Commodity exchange officials hope that the government comes up with the policy fast. “This will help us make our future plans and get a fix on our foreign stakeholders,” said Joseph Massey, deputy managing director, MCX.
Although the government is not waiting for the recommendations of the Abhijit Sen-led committee on the futures market to set the FDI norms, the two may happen around the same time.
Sen is also expected to submit is report by June-end or beginning of July. These will clear uncertainties existing in commodities exchanges.