The Reserve Bank of India (RBI) today allowed domestic companies to issue shares against import of capital goods and machineries, making it easier for them to expand.

However, companies will have to get prior approval of the government to trade equities for imports.

"...It has been decided to permit issue of equity shares /preference shares under the government route of the FDI scheme for import of capital goods/machineries/equipments [including second-hand machineries]...," the RBI notified.

The notification follows liberalisation of Foreign Direct Investment (FDI) policy in March.

Then, the government had permitted trading in equity or preference shares for settlement of capital import bills to help the domestic industry to access latest machinery without paying cash.

"All such conversions of import payables for capital goods into FDI should be completed within 180 days from the date of shipment of the goods," the central bank said.

Earlier, an Indian company was only allowed to issue shares to a foreigner in lieu of technology or technical know-how and against royalty and lumpsump fees.

Equities could also be issued under the FDI norms against pre-operative expenses like payment of rent.

The central bank has said that for conversion of shares for payments of imported capital goods, the company had to pass a special resolution.

The government approval would be subject to pricing guidelines of RBI and appropriate tax clearance.