Relaxing the rules for foreign direct investment (FDI) in the country, the government on Thursday decided to permit the issuance of equity to overseas firms against imported capital goods and machinery.

Furthermore, the norms for overseas investment in production and developments of seeds have been liberalised.

"After stakeholder consultations, the government has now decided to permit issue of equity, under the government route, in... import of capital goods/ machinery/ equipment (including second-hand machinery)," an official statement said.

This measure, which liberalises the conditions for conversion of non-cash items into equity, is expected to significantly boost the prospects for foreign companies doing business in India, it said.

In the agriculture sector, it said that FDI will now be permitted in the development and production of seeds and planting material without the stipulation of having to do so under 'controlled conditions'.

The government made these changes in the third edition of the consolidated FDI policy circular, a ready reckoner on foreign investment-related regulations that was released here today.

"Circular 1 of 2011 third edition of the Consolidated FDI Policy is a part of ongoing efforts of procedure simplification and FDI rationalisation, which will go a long way in inspiring investor confidence," commerce and industry minister Anand Sharma said.

The government has further decided to abolish the condition of prior approval in case of existing joint ventures and technical collaborations in the 'same field'.

"It is expected that this measure will promote the competitiveness of India as an investment destination and be instrumental in attracting higher levels of FDI and technology inflows into the country," it added.

It also said that companies have now been classified into only two categories - 'companies owned or controlled by foreign investors' and 'companies owned and controlled by Indian residents'.

The earlier categorisation of 'investing companies', 'operating companies' and 'investing-cum-operating companies' has been done away with, it added.

During the 11-month April-February period this fiscal, FDI inflows into India declined by 25 per cent to USD 18.3 billion.