Home >Market >Stock-market-news >Government raises foreign shareholding cap in stock exchanges to 15%
The cabinet has also approved a proposal to allow foreign portfolio investors to acquire shares through initial allotment, besides the secondary market route, in stock exchanges. Photo: Aniruddha Chowdhury/Mint
The cabinet has also approved a proposal to allow foreign portfolio investors to acquire shares through initial allotment, besides the secondary market route, in stock exchanges. Photo: Aniruddha Chowdhury/Mint

Government raises foreign shareholding cap in stock exchanges to 15%

The cabinet also moves to cut red tape around PSU defence firms forming joint ventures with private ones

New Delhi/Mumbai: The Union cabinet on Wednesday increased the foreign shareholding limit in Indian stock exchanges from 5% to 15%, as announced in the budget, bringing investments by foreign entities on par with those by domestic institutions.

In another decision aimed at encouraging private sector participation in defence manufacturing, the cabinet moved to cut the red tape around public sector defence companies forming joint ventures with private companies.

These two were among a slew of decisions taken at a cabinet meeting chaired by Prime Minister Narendra Modi.

The decision on increasing the foreign shareholding limit in Indian stock exchanges was in line with an announcement made by finance minister Arun Jaitley in his budget speech on 29 February in which he said the investment limit for foreign entities in Indian stock exchanges will be enhanced from 5% to 15%.

“This will enhance global competitiveness of Indian stock exchanges and accelerate adoption of best-in-class technology and global market practices," he added.

The cabinet also approved a proposal to allow foreign portfolio investors to acquire shares through initial allotment, besides the secondary market route, in stock exchanges. The move will help accelerate the adoption of latest technology and global best practices, the cabinet said in a statement.

“We welcome the move. It will bring best exchanges in the world to acquire significant minority stake in Indian exchanges which will connect these exchanges to savings pool across the world and bring the best in class practices to Indian markets," a Bombay Stock Exchange spokesperson said.

Chitra Ramkrishna, managing director and chief executive officer of the National Stock Exchange (NSE), said the NSE had “always aligned itself with global best practices."

She added: “Exchange believes that government’s decision is in sync with the spirit of globalisation."

The proposal was first made by capital market regulator Securities and Exchange Board of India (Sebi) in 2012, but was turned down by the Bimal Jalan committee set up to suggest amendments to Stock Exchange and Clearing Corporations (SECC) Regulations.

In June 2014, Sebi once again proposed this to the ministry, arguing that the exchange space is now mature enough to handle higher participation from a single foreign investor.

In November last year, the finance ministry wrote to the market watchdog for its feedback on allowing an individual foreign shareholder to hold up to 15% in an exchange. The proposal was cleared in the union budget this year.

The change in rules may pave the way for foreign exchanges to increase their stake in Indian counterparts.

Singapore Exchange Ltd and Deutsche Boerse AG currently hold 4.9% each in BSE Ltd. In the NSE, the top foreign shareholders include Gagil FDI Ltd (Cyprus), GS Strategic Investments Ltd, SAIF II SE Investments Mauritius Ltd and Aranda Investments (Mauritius) Pte Ltd. They hold 5% each.

To boost private sector participation in defence production, the cabinet decided to abolish the rules relating to formation of joint ventures that specifically apply to state-owned defence companies over and above the rules that apply in general to all public sector entities. These norms were brought in by the previous UPA government in February 2012.

“The Department of Defence Production came to the conclusion that with the increasing participation of the private industry in defence sector and the transformation taking place in the defence acquisition ecosystem, the requirement of having separate joint venture guidelines for defence public sector is no longer considered necessary," said an official statement.

The change will level the playing field between state-owned and private sector companies, it said.

Central public sector firms Mazagon Dock Ltd, Goa Shipyard Ltd, Garden Reach Shipbuilders & Engineers Ltd, Hindustan Shipyard Ltd, Bharat Electronics Ltd, Hindustan Aeronautics Ltd, Bharat Earth Movers Ltd, Bharat Dynamics Ltd. and Mishra Dhatu Nigam Ltd are expected to benefit from the decision.

In a major move for the port sector, the cabinet approved a policy for award of waterfront and associated land to port-dependent industries (PDIs) in major ports.

The policy will result in uniformity and transparency in the procedure for awarding captive facilities. It will enable optimal utilization of capacities in major ports and increase revenue to the port authority. The ambit of the policy includes creation of new assets as well as utilization of currently unutilized existing assets such as vacant berths.

Under the Policy, concession will be granted to PDI for setting up dedicated facilities at major ports for import and/or export of cargo and their storage before transportation to their destination, for a period not exceeding 30 years. Extension of concession period on conditions including under utilization of asset as per the concession agreement may be allowed. After a maximum of 30 years of operation, the waterfront and associated land will be allotted for construction of berths, offshore anchorages, transhipment jetties, single point moorings etc.

With the government of India focusing on Port-led development through its ambitious Sagarmala project where India’s 7,500-km coastline will be developed and merchandise exports by $110 million is expected, the optimal utilization of land and waterfront will be of critical importance. The policy will help generate committed business for the ports on a long term basis.

A senior shipping ministry official said that any PDI desirous of setting up a facility has to prepare a feasibility report and submit it to the concerned port after which an evaluation will be done. Selection of the successful PDI will be made through open competitive bidding, comprising the RFQ and RFP stages.

The Union Cabinet also approved the establishment of a new All India Institute of Medical Sciences (AIIMS) at a cost of 925 crore at Bhatinda in Punjab under the Pradhan Mantri Swasthya Suraksha Yojana (PMSSY). The cabinet decision comes ahead of the 2017 assembly election in Punjab.

The institution to completed in 48 months will have a hospital with bed capacity of 750 beds and facilities AYUSH block, auditorium, night shelter, hostels, residences and will focus on regional disease and health research.

The Cabinet also approved the National Automotive Testing and R&D Infrastructure Project (NATRIP) with revised cost for 3,727.30 crore for establishment of the automotive test centres of global-level in India. These full-fledged testing centres will come up at ICAT-Manesar (Haryana), GARC-Oragadam, (Tamil Nadu), ARAI- Pune (Maharashtra) and VRDE-Ahmednagar (Maharashtra).

In another decision, the cabinet headed by Modi also decided to “rescind" a decision taken by the previous Congress-led United Progressive Alliance (UPA) government to set up a Concurrent Evaluation Office (CEO) for managing Concurrent Evaluation Network (CENET) in Ministry of Rural Development.

The CEO was envisaged to undertake concurrent evaluation of Rural Development programmes in conjunction with Independent Evaluation Office (IEO) of the erstwhile Planning Commission," a government statement said.

The CEO’s office was set up in 2014 to offer real-time analysis of the government’s social programmes including the flagship rural employment guarantee scheme.

Wednesday’s decision “will pave the way for a need based strengthening of the Economic and Monitoring Wing of the Ministry of Rural Development for managing and carrying out evaluation studies of Rural Development programmes," the government statement said.

Jyotika Sood, Nikita Mehta and Gireesh Chandra Prasad contributed to this report.

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