Govt hikes foreign investment limit in stock exchanges three-fold to 15%

The union cabinet chaired by Prime Minister Narendra Modi on Wednesday approved raising foreign shareholding limit in Indian stock exchanges from the existing limit of five per cent to 15 per cent.

The 15 per cent foreign investment limit will also apply to depositories, banking companies, insurance companies and commodity derivative exchanges.

The cabinet also approved a proposal to allow foreign portfolio investors to acquire shares through initial public offers (IPOs), besides the secondary market - the stock exchanges.

The move will help in enhancing global competitiveness of Indian stock exchanges by accelerating / facilitating the adoption of latest technology and global best practices which will lead to overall growth and development of the Indian capital market, an official release after the cabinet meeting showed.

Finance minister Arun Jaitley had, while presenting the union budget for 2016-17 had proposed reforms in FDI policy with respect to enhancement of investment limit for foreign entities in Indian stock exchanges from 5 per cent to 15 per cent on par with domestic institutions.

Defence JVs
The union cabinet also on Wednesday approved abolition of existing "guidelines for establishing joint venture companies by defence public sector undertakings (DPSUs). These guidelines, which were notified in February 2012, will not be required for separate JV by the DPSUs.

The guidelines issued by the Department of Public Enterprises (DPE) and the ministry of finance (MoF) from time to time, which are uniformly applicable to all central public sector enterprises (CPSEs) will be applicable for the DPSUs to set up JV companies now. This will meet the goal of indigenisation  and self-reliance in this sector, the release pointed out.

The abolition of the existing JV guidelines will provide a level playing field between DPSUs and the private sector. It will allow DPSUs to forge partnerships in an innovative manner enhancing self-reliance in defence and provide for enhanced accountability / autonomy of DPSUs in ensuring that the process of JV formation is effectively managed by them, so as to secure best outcomes in the interest of national security.

All nine DPSUs, ie, Mazagon Dock Limited, Goa Shipyard Limited, Garden Reach Shipbuilders andEngineers Limited, Hindustan Shipyard Limited, Bharat Electronics Limited, Hindustan Aeronautics Limited, Bharat Earth Movers Limited, Bharat Dynamics Limited and Mishra Dhatu Nigam Limited will benefit from the new cabinet decision.

The decision comes in the backdrop of the issues which emerged in the operationalisation of JV guidelines of DPSUs. 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 eco system thereon, the requirement of having separate JV guidelines for DPSUs is no longer considered necessary.

In the emerging scenario, with primacy being accorded to indigenous manufacturing / Make in India, it is felt that having multiple sets of guidelines may lead to ambiguity and incongruity in the environment.

The Defence Production Policy promulgated in January 2011 to achieve substantive self-reliance in defence production, including design and development capability, had recommended that all viable approaches, including JVs, to be undertaken to achieve the desired self-reliance in defence production.

Consequent to this, a need was felt to supplement the DPE guidelines with formulation of JV protocols / guidelines tailored for DPSUs which would address the specific requirements of the defence sector and also ensure that the interests of DPSUs were safeguarded. Accordingly, the cabinet at its meeting on 9 February 2012, approved guidelines for establishing joint venture companies by DPSUs. The decision was notified on 17 February 2012.

The government has now reviewed the requirement for having separate JV guidelines for DPSUs in the context of the increasing participation of the private industry in defence sector and the transformation taking place in the defence acquisition eco system.