India eases rules for FIIs in govt, corporate bonds
India will ease restrictions for foreign institutional investors in central and corporate bonds next month to attract inflows and help fund a widening current account deficit, Finance Minister P Chidambaram said on Saturday.
March 24, 2013 / 13:14 IST
India will ease restrictions for foreign institutional investors in central and corporate bonds next month to attract inflows and help fund a widening current account deficit, Finance Minister P Chidambaram said on Saturday.
Under the new rules, foreign investors can invest up to USD 25 billion in long-term government bonds, up from USD 15 billion. The cap on corporate bonds remains at the current level of USD 51 billion, but separate limits on different types of corporate debt have been removed.Also Read: P Chidambaram announces more reforms to boost growth "Effect from April 1, there will be two baskets - one of USD 25 billion for government securities and one USD 51 billion for all corporate bonds," Chidambaram told a conference.Currently, foreign institutional investors can invest up to USD 25 billion in corporate infrastructure bonds, USD 20 billion in other listed corporate bonds, and USD 5 billon could be invested by other foreign investors including sovereign wealth funds, pension and insurance funds.India restricts foreign access to its debt markets because of its reluctance to owe money to overseas investors, and has a complicated system of categories for debt as well as restrictions on which types of investors can bid for the debt.But a record high current account deficit - which hit 5.4 percent of the GDP in the quarter ending September - has prompted the government to take steps to increase capital inflows into country's debt and stock markets.New Delhi will review the foreign investor cap on corporate bonds when 80 percent of the limit is reached, Chidambaram said, adding it would help large investors plan their investment.The government may further increase the cap on FIIs to invest in government bonds, depending on demand and macro-economic requirements, Chidambaram said."The annual enhancement of the government bond limit will remain within 5 percent of the gross annual borrowing of the central government excluding buy backs," he said.The government plans to borrow a gross rs 5,79,000 crore in 2013-14, excluding the Rs 50,000 crore of bonds it will sell to fund a buy back.Chidambaram also said the current corporate bond auction mechanism will be replaced with "on-tap system" that is used for infrastructure bonds.India's current account gap is expected to touch an all-time high for the fiscal year that ends in March. Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
