Govt rationalises FII inflow norms

FIIs have invested $133 billion in equities

In order to attract more foreign institutional investment flows into long-term debt instruments, Finance Minister P Chidambaram on Saturday announced rationalisation of norms for FII inflows, considered important for reducing India’s historically high current account deficit.

The minister said that from April 1, sub limits for FII investment in government securities will be merged into one and similar step will be taken for sub categories of FIIs in corporate bonds as well.

Three different limits are currently are in use for corporate and long term infrastructure bonds.

 "There were a number of sub-divisions and in order to rationalise, it is proposed to merge the existing sub limits and create only two broad categories. One category of basket will consist of government securities of $25 billion and the second basket will consist of all corporate bonds of $51 billion,” Chidambaram said inaugurating the National Editors’ Conference here.

He called it next generation reforms and said the government was working “surely and steadily” to put the economy back on growth path.

 The set of measures are expected to enhance foreign institutional inflows into long term debt instruments in the country. Since opening up of Indian markets for FIIs in 1992, they have made a cumulative net investment of $133 billion in equities and a little over $32 billion in the debt segment.

 Increase in FII inflows together with foreign direct investment and external commercial borrowings are considered import for financing CAD, which reached 5.4 per cent of the GDP in July-September quarter, a historical high. Chidambaram said in order to allow large investors plan their investments, the government will review the foreign investment limit in corporate bonds when 80 per cent of the current limit is taken up.

It will also enhance the limit on government bonds, as and when needed, based on utilisation levels, demand from foreign investors, macroeconomic requirements and a prudent offshore-onshore balance.

In January this year, the Reserve Bank had hiked FII investment limits in government securities and corporate bonds by $5 billion each, taking the total cap in domestic debt to $76 billion.

“With liberalisation of FDI in certain areas and slew of other steps, we have travelled a considerable distance on the road of economic reforms,” Chidambaram said, adding the need of the hour was to ensure that these reforms were implemented efficiently so to ensure an upturn in GDP growth in as short a time as is “practicably possible”.

Chidambaram also hoped that the Food Security Bill, which promises to give more than two-thirds of India’s population foodgrain at highly subsidised cost, will be passed in Budget session itself.