Commodities Broking Door Opened To FDI (03-Mar-2010)
With a view to bring international best practices to the business and transform it completely, the Government of India is gearing up to liberalize Foreign Direct Investment (FDI) in commodities broking,
However, the market participants feel the government should allow more institutional players for the commodities market to develop.
The Department of Industrial Policy and Promotion is expected to move a proposal very soon before the Union Cabinet that permits 100% FDI in broking business. The Ministry of finance has already endorsed for this proposal.
Mr. Ajay Shah, professor of NIPFP said the move could bring about complete transformation on the lines of equity business when foreigners were permitted to enter this area.
The government is proposing to allow full FDI in commodities broking by adding it to the eligible list of activities permitted to be carried out by Non Banking Finance Companies (NBFCs) with 100% of FDI.
100 % FDI is allowed in stock broking and forex broking through the automatic route.
A government official said the DIPP will soon move a formal note for the consideration of the cabinet.
Since, the finance ministry has already given its nod to the proposal after consultations with the RBI, it is unlikely to face any opposition in the cabinet. The RBI had some reservations earlier.
Other key stakeholder includes - the ministry of consumer affairs and commodities regulator Forwards Markets Commission are already in favour of the move.
Mr. Jayant Manglik, President Religare Commodities said allowing FDI in commodity broking business will bring about a big change in the business. It will given access to international best practices, high quality products and bring about a shift from a trading oriented business to knowledge based business.
At present, FDI policy does not explicitly allow foreign investment in commodities broking business though some investment has been allowed in past on a case-to-case basis including that of Unicon Financial Intermediaries, Transmarket Group and GS Strategic Investments Ltd.
Mr. Akash Gupt, Executive Director of PwC said there is no guideline on this though foreign investment in commodities broking was being approved carefully. There was confusion if it was a permitted NBFC activity where 100 % FDI was allowed.
Now the government wants to fill the bridge and bring commodities broking on par with stock broking and other such activities. Inter-ministerial deliberations on the issue that began 2 years back had reduced its pace after the global financial meltdown.
2 months back the proposal was revived by the DIPP, which is working on compiling multiple press notes that lay down FDI policy guidelines into one note.
However, Mr. Manglik said that the government should take some more steps while allowing FDI such as - allowing banks and mutual funds to participate in market to give it more depth, create a single clearing system, allow options and single regulator for all complete commodity ecosystem.
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