Mar 25, 2013 09:13 AM IST | Source: CNBC-TV18

FM hikes FII debt limit to bridge current account deficit

CNBC-TV18's Aakansha Sethi reports that the FM has merged FII limits to lure inflows into debt segment and bridge the current account deficit.

In an effort to bridge the widening current account deficit, finance minister P Chidambaram has said that limits for FII investment in corporate bonds and long-term infrastructure bonds will be merged effective from April 1, reports CNBC-TV18's Aakansha Sethi.

Also Read:Chidambaram announces more reforms to boost growth

The key decisions announced by the FM are that the limits on FII fungibility for securities is going to be USD 25 billion and the limits for long-term securities as well as old securities will be merged. On corporate and long-term infrastructure bonds, the three different limits that are currently in use will now be merged into one limit of USD 51 billion.

The finance minister also mandated that the total FII investments in borrowing should not be above 5 percent of the total as recommended in the Raghuram Rajan Committee report. All these decisions will be applicable from the April 1 and the finance minister hopes that these measures will ensure better FII flows into the debt segment of the economy that will aid in bridging the current account deficit.

The finance minister has been trying to consolidate measures that will ensure increased economic growth. But the current instability has reduced the window of opportunity to announce reforms.

The decision to change the fungibility for FII limits is an internal reform and large, broad-based reforms require to get all the stakeholders on board which might be difficult. However, the finance minister is confident and keen on infusing faster economic growth. But the task does not seem to be an easy one.

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