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Jun 25, 2012, 06.01 PM IST
Jayesh Mehta of Bank of America, says that there were expectastions of new NRI bond and reduction in withholding tax. He also says that reduction in maturity will be a bit of help.
The Reserve Bank of India (RBI) today hiked the limit of external commercial borrowing (ECB) to USD 10 billion and also increased the limit of overseas investment in government bonds by USD 5 billion to USD 20 billion.
In reaction to the news, Jayesh Mehta of Bank of America, says that there were expectations that the regulator would come out with news of new NRI bond and reduction in withholding tax. He says that the reduction in maturity will be of minimal help.
Below is the edited transcript of his interview to CNBC-TV18. Also watch the accompanying video.
Q: Were expectations higher than this announcement?
A: Yes, people were expecting new NRI bond and reduction in withholding tax.
Q: Do you think inflows will improve with investment in the infrastructure fund residual maturity reduced to 15 months?
A: Reduction in maturity will be of little help. The biggest problem on FII side is inactivity on withholding tax. Big inflows will come only if withholding tax is rationalise.
Q: You mean without changing withholding tax the extra USD 5 billion of G-Secs which FIIs have been technically allowed to buy in will have little impact?
Q: Do you think the withholding tax will prevent too much coming in or you expect one leg of it to be smoother than the other?
A: Sovereign fund has exemption on withholding tax. Some sovereign fund or people who are exempted from withholding tax will definitely come in. If you see the withholding tax pattern, it is on gross income of the FIIs which adds pressure to investments.
So, why will an investor come in and that will act as a big challenge. Some sovereign fund would definitely come in for G-Sec but not all across FIIs. That's something we need to really see.
Q: From hereon do you expect volatility in the rupee?
A: No. Nothing really changes dramatically from yesterday, so it continues the same thing and we don't know what's the range, we just keep on changing the range but where exactly they will come out all out we don't know.
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