Sources: India likely to
raise foreign investment limit in government debt soon
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[June 09, 2014]
MUMBAI/NEW DELHI (Reuters) - India
will likely raise the foreign investment limit in
government debt soon, as almost all the allocation has
already been taken up as overseas buyers pile into the
country's financial markets, said four officials with
direct knowledge of the government's thinking.
The current cap is 995.46 billion rupees ($16.86 billion).
As of Friday, foreign investors owned 886 billion rupees worth of
government debt, or 89 percent of the full available allocation,
following a surge in inflows due to improving government finances
and optimism about Narendra Modi's recent election as prime
Once the limit reaches 90 percent, foreign investors are only
allowed to buy debt under a more cumbersome auction bidding system.
One of the sources said the government could raise the amount
foreign investors are allowed to buy by another $5 billion.
India's 10-year benchmark bond yield <IN088323G=CC> fell 3 basis
points to 8.49 percent after the news.
The finance ministry will decide on the matter after consultations
with the Reserve Bank of India and capital markets regulator
Securities And Exchange Board of India, the sources said.
"I expect the government to take a call on this soon," said one of
the officials involved in the process.
The sources declined to be identified as they were not authorized to
talk to the media about the plans.
Foreign investors bought a net $425.43 million worth of debt on
Friday, their biggest daily purchase since May 23 and bringing their
total this year to $8.6 billion.
Under current rules, India allows all types of foreign investors to
buy up to $20 billion of government debt, although the dollar amount
depends on the exchange rate.
The total foreign investment limit for foreign investors is $30
billion, with the remaining $10 billion for investors such as
foreign central banks, sovereign wealth funds, insurance funds and
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Investors have been expecting the government would raise the
allocation for foreign investors once the 90 percent mark was
The country last raised the amount of government debt that foreign
investors can buy by $5 billion in June last year.
The renewed interest comes on the back of hopes that Modi will
unveil big reforms, such as accelerating investments and clearing
infrastructure projects, to boost an economy that posted two
consecutive years of below 5 percent growth - the worst slowdown in
more than a quarter of a century.
Still, the current limit means foreign investors own only about 5
percent of the total Indian government bond market. ($1 = 59.0600
(Reporting by Himank Sharma, Rajesh Kumar Singh and Suvashree Dey
Choudhury; Editing by Rafael Nam & Kim Coghill)
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