Finance Minister P Chidambaram said that the government 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.
. “Effect from April 1, there will be two baskets – one of $25 billion for government securities and one $51 billion for all corporate bonds,” Mr Chidambaram told a conference.
Currently, foreign institutional investors can invest up to $25 billion in corporate infrastructure bonds, $20 billion in other listed corporate bonds, and $5 billon could be invested by other foreign investors including sovereign wealth funds, pension and insurance funds.
Under the new rules, foreign investors can invest up to $25 billion in long-term government bonds, up from $15 billion. The cap on corporate bonds remains at the current level of $51 billion, but separate limits on different types of corporate debt have been removed.
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 per cent 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 per cent of the limit is reached, Mr Chidambaram said, adding it would help large investors plan their investment.
Source – Reuters