Also, FIIs are permitted to invest $5 b in bonds of infrastructure companies

Aimed at bridging the financing gap in infrastructure business and ensuring India's growing attractiveness as an investment destination, the government on Thursday raised the cap on investment by foreign institutional investors (FIIs) in the country's debt and bond markets by $10 billion to $30 billion.

According to an official statement here, FIIs will now be allowed to invest up to $5 billion more in both government bonds and corporate papers after they reach the existing cap of $5 billion and $15 billion in the two instruments, respectively. Besides, FIIs are permitted to invest $5 billion in bonds of infrastructure companies and government bonds with a residual maturity of over five years.

“The government has increased the current limit of FII investment in government securities by $5 billion, raising the cap to $10 billion and the incremental limit of $5 billion be invested in securities with residual maturity of over five years,” the statement said.

“The current limit of FII investment in corporate bonds has also been increased by $5 billion, raising the cap to $20 billion and the incremental limit of $5 billion be invested in corporate bonds with residual maturity of over five years issued by companies in infrastructure sector,” it said.

The government is of the view that enhancement of the FII investment cap would provide avenues for increased investments in debt securities, help investment in the infrastructure sector and the development of government securities and corporate bond markets in the country.“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 statement said.

Investment destination

Having emerged as one of the top investment destinations in the course of the fast-paced recovery from the impact of the global financial crisis, India has already attracted over $17 billion in investment in various bonds and securities. A hike in the ceiling was, therefore, deemed necessary as FIIs are already close to touching the existing cap of $20 billion in investment. Commenting on the relaxation in the investment limit, Finance Minister Pranab Mukherjee viewed that the move would help augment the flow of FII funds into the country's debt markets. “This is a welcome announcement and I do hope that the handicap which FIIs are facing will be removed considerably and there will be more of a flow to the capital markets, he said.

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