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FDI in Commodity Exchanges: New 49% Composite Cap

Current · Source: Reserve Bank of India · RBI/2007-08/303 · issued 28 Apr 2008 · ~1 min read
Quick answerRBI now allows foreign investment in commodity exchanges up to 49% (FDI 26%, FII 23%). FDI needs government approval; FII purchases restricted to secondary market. Compliance with Forward Market Commission rules is mandatory.
The rule, in the simplest words
How it plays out — a real example

A forex & trade-finance officer in Indore, working at a bank, helps a foreign investor set up a joint venture with a local commodity exchange. The officer ensures that the foreign investment does not exceed the 49% composite cap and that the FDI limit is not breached. They also verify that the FII purchases are restricted to the secondary market and comply with the Forward Market Commission regulations.

What changed

RBI, in consultation with the government, has permitted foreign investment in commodity exchanges with a composite ceiling of 49%. Within this, FDI is capped at 26% and FII at 23%. FDI requires specific government approval, and FII purchases are allowed only in the secondary market.

What it means for you

Banks and lenders dealing with commodity exchanges can now facilitate foreign capital inflows under these limits. The move opens up equity participation for foreign investors, but strict compliance with FMC regulations and government approval for FDI is required. This may increase liquidity and valuation of commodity exchanges.

What you must do

Who it affects

AD Category-I banks, Commodity exchanges, Foreign investors (FDI and FII), Customers and constituents of AD banks dealing with commodity exchange investments

❓ Common questions

What is the total foreign investment limit allowed in commodity exchanges?

The composite ceiling is 49%, with FDI up to 26% and FII up to 23%.

Do FII purchases require government approval?

No, FII purchases are allowed only in the secondary market and do not need specific government approval, unlike FDI.

Are there any additional regulatory requirements?

Yes, foreign investment must also comply with regulations issued by the Forward Market Commission.

📜 Read the original circular — full text as issued by RBI
RBI/2007-08/303 A.P. (DIR Series) Circular No.41 April   28, 2008 To, All Category – I Authorised Dealer Banks Madam / Sir, Foreign investment in Commodity Exchanges - Amendment to the Foreign Direct Investment Scheme Attention of Authorised Dealer Category - I (AD Category - I) banks is invited to Schedule I to Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000, notified vide FEMA Notification No.20/2000-RB dated May 3, 2000 , as amended from time to time. 2. It has been decided in consultation with Government of India to allow foreign investment in Commodity Exchanges subject to the following conditions : i) There would be a composite ceiling of 49% Foreign Investment, with a FDI limit of 26% and an FII limit of 23%. ii)  FDI will be allowed with specific approval of the Government. iii) The FII purchases in equity of Commodity Exchanges will be restricted only to the secondary markets. iv) Foreign Investment in Commodity Exchanges would also be subject to compliance with the regulations issued, in this regard, by the Forward Market Commission. A copy of Press Note 2 (2008 series) dated March 12, 2008 issued in this regard is enclosed. 3. AD Category – I banks may bring the contents of this circular to the notice of their constituents and customers concerned. 4. Necessary amendments to the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 are being issued separately. 5. The directions in this circular have been issued under Sections 10(4) and 11(1) of Foreign Exchange Management Act, 1999 (42 of 1999) and is without prejudice to permissions / approvals, if any, required under any other law. Yours faithfully, (Salim Gangadharan) Chief General Manager-in-Charge
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2007-08/303 · issued 28 Apr 2008. The plain-English explanation above is BankPulse’s own independent summary.
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Worked example & action-note template

Example: if you are a Compliance officer at a bank this circular applies to (AD Category-I banks, Commodity exchanges, Foreign investors (FDI and FII), Customers and constituents of AD banks dealing with commodity exchange investments), your first concrete step on “FDI in Commodity Exchanges: New 49% Composite Cap” is: “Update internal compliance checklists to reflect the 49% composite cap and sub-limits for FDI and FII.” (RBI issued this 28 Apr 2008).

  1. Circular: RBI/2007-08/303 -- FDI in Commodity Exchanges: New 49% Composite Cap
  2. Issued: 28 Apr 2008
  3. Action required: Update internal compliance checklists to reflect the 49% composite cap and sub-limits for FDI and FII.
  4. Action required: Ensure all FDI proposals for commodity exchanges are routed for specific government approval before processing.
  5. Action required: Restrict FII purchases in equity of commodity exchanges to secondary market transactions only.
  6. Action required: Verify that clients comply with Forward Market Commission regulations alongside FEMA provisions.
  7. Action required: Communicate these changes to relevant constituents and customers handling foreign investment in commodity exchanges.
  8. Owner: ____________ Target date: ____________
  9. Board/committee approval needed? Y / N
  10. Evidence filed in compliance register on: ____________
Built only from this circular’s own published fields — not legal advice; always confirm against the official RBI source.

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Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=4151&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.
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