Even though RBI announced (1) measures to boost capital flows, (2) raised foreign investment limits in government bonds by US$5bn and (3) eased restrictions on external commercial borrowings and infrastructure bonds, the markets remain disappointed. Dr Soumya Kanti Ghosh, Additional Director, Research Desk, discusses these and several other issues in a Tele-Vision debate
Detail of RBI announcements
- Foreign Institutional Investor (FII) limit in Government Bonds Increased to USD 20 Billion:
- FII’s can now hold government bonds with an upper cap of USD 20 Billion. The limit was USD 15 Billion previously.
- Long-term investors – Sovereign Wealth Funds (SWFs), Multilateral Agencies, endowment funds, insurance funds, pension funds and foreign central banks registered with SEBI – can invest in government securities within this enhanced limit of USD 20 Billion.
- The limit of USD5bn for securities with residual maturity of five years has been eased; the residual maturity has been reduced to three years while the investment quota has been increased to US$10bn.
- Eased Conditions for Investment in Infrastructure Bonds: While the overall cap for foreign investors remains unchanged at USD 25bn – conditions for investment in each scheme has been relaxed
- Infrastructure Debt Funds: Of the above USD 10 Billion has been earmarked for Infrastructure debt funds (IDF). The lock-in for IDF investment is changed to one year from three years previously
- Mutual Fund Investment: USD 3 Billion out of USD 25 Billion above has been set aside for mutual fund infrastructure debt schemes. Qualified foreign investors (QFIs) can invest in MF schemes holding at least 25% of their assets (either in debt or equity or in both) in the infrastructure sector.
- New Scheme for External Commercial Borrowings: Introduced a new ECB scheme for manufacturing and infrastructure companies subject to a ceiling of US$10bn.
