India has further relaxed its regulatory norms by allowing more foreign funds to come into the country’s debt markets. The country’s finance ministry has increased the current limit on foreign institutional investor (FII) investment in government and corporate bonds by $5 billion each, according to a statement from the finance ministry.
The statement from the finance ministry said: “The policy has been reviewed in the context of India's evolving macroeconomic situation, its increasing attractiveness as an investment destination and need for additional financial resources for India's infrastructure sector while balancing its monetary policy.”
The limit for FII investment in government securities, following the relaxation, has been raised to $10 billion and the incremental limit of $5 billion is to be invested in securities with residual maturity of over five years.
Meanwhile, the current cap on FII investment in corporate bonds has also been increased by $5 billion raising the cap to $20 billion. The additional investment of $5 billion is to be invested in corporate bonds with residual maturity of over five years issued by companies in the infrastructure sector. FIIs can now invest a total of up to $30 billion in the debt markets.
“The enhancement of the FII investment cap would provide avenues for increased FII investments in debt securities, help investment in the infrastructure sector and the development of Government securities and corporate bond markets in the country,” according to the statement.
In order to boost investments in its lagging infrastructure sector, the Indian government has in the past relaxed regulatory norms in order to attract more foreign investments. Recently the government permitted raising funds through take-out financing via external commercial borrowings (ECB) for infrastructure companies.