M A I N   N E W S

Govt eases curbs on foreign institutional investors
Chidambaram promises more reforms to meet current account deficit
Vibha Sharma
Tribune News Service

What it entails

Foreign investors can invest up to $25 billion in long-term government bonds, up from $15 billion
Cap on corporate bonds stays at $51 billion; separate limits on different types of corporate debt removed
‘On tap’ system to replace SEBI auction mechanism allocating debt limits for corporate bonds

Rupee flow to beneficiaries

Former Prime Minister Rajiv Gandhi had said that only 15 paisa out of a rupee allocated by the Centre actually reached the beneficiary. The FM did not put a figure on the current status of the rupee, but said he was sure that the percentage was much higher now than the figure pegged around two decades ago.

New Delhi, March 23
The government has decided to ease rules to meet the current account deficit (CAD) by allowing foreign institutional investors (FIIs) more liberal access to the Indian corporate bond market from April.

Finance Minister P Chidambaram today said India had eased restrictions for FIIs in central and corporate bonds from next month to attract inflows and help fund a widening CAD.

“These announcements would promote inflow of portfolio investment and thereby facilitate infrastructure funding and bridge the current account deficit,” the Finance Minister said at the National Editors Conference in the Capital.

The current account gap is expected to touch an all-time high for the fiscal year that ends on March 31. “CAD is a greater worry (than fiscal deficit of 5.2 per cent),” Chidambaram admitted.

He said the euro zone crisis had impacted investment around the world and India with sharp deceleration in exports was no exception. There still was “no definitive solution” in sight, he said. Under the new rules, foreign investors can now 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.

The current sub-divisions have been merged to create only two broad categories to further rationalise the system. From April 1, there will be two baskets - first of $25 billion for government securities and second of $51 billion for corporate bonds.

Besides, the current SEBI auction mechanism allocating debt limits for corporate bonds will be replaced by an “on tap” system.

While the government prefers to restrict easy foreign access to its debt markets, the record high current account deficit has prompted it to take steps to increase capital inflows into country’s debt and stock markets.

It may further increase the cap on FIIs to invest in government bonds, depending on demand and macro-economic requirements.

“The government is steadily and surely working on next generation of reforms,” Chidambaram promised.

The foreign investor cap on corporate bonds will be reviewed when 80 per cent of the limit is reached. The annual enhancement of the government bond limit will remain within 5 per cent of the gross annual borrowing of the Central Government excluding buybacks.

Recent economic reforms include liberalisation of FDI norms in multi-brand retail and aviation, partial deregulation of diesel prices and capping supply of subsidised LPG.





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