Aiming to rein in the current account deficit (CAD), the Government on Saturday announced rationalisation of FII investments in corporate as well as Government bonds through waiving off of sub-limits in each of the segment in a bid to attract more foreign inflows to fund CAD.
“The CAD can be financed only through foreign inflows and that is why I am happy to announce a major rationalisation of foreign investment in Government securities and corporate bonds,” he said while addressing the National Editors' Conference.
Hit by high gold imports and slowdown in exports, CAD, the difference between inflow and outflow of foreign currency, touched a record high of 5.4 per cent in July-September period of the current fiscal.
The limit for FII investment in Government securities and corporate bonds were enhanced by $5 billion each taking the total limit prescribed for FII investment in government securities to $25 billion and in corporate bonds to $51 billion.
“There were a number of sub divisions and in order to rationalise it, it is proposed to merge the existing sub limits and create only two broad categories,” he said.
The category of one basket will consist of Government securities of $25 billion, he said, adding, this will merge the old government securities and the long term Government securities.
The second basket will consist of all corporate bonds upto a limit of $ 51 billion. This will merge the $ 1 billion dollar for Qualified Foreign Investors, $25 billion for FIIs and $25 billion for FII in long term infra bonds, he said.
The changes will be effective from April 1, he said, adding SEBI will now auction all bonds (G-Sec and Corporate bonds) in the manner in which infrastructure bonds are sold.
“In order to allow large investors to plan their investments, Chidambaram said, Government will review the foreign investment limit in corporate bonds when 80 per cent of the current limit is reached. It will also enhance the limit on government bonds as and when needed based on utilisation level, demand from foreign investors, macro economic environment and the prudent onshore-offshore balance,” he added.
“However in order to provide a guide to investors, I am happy to state that the annual enhancement of the government bond limit will remain within 5 per cent of the gross annual borrowing of the central govt excluding buybacks,” he added.Referring to global economy, the minister said the Eurozone crisis has impacted investment around the world and India was no exception.