Chidambaram simplifies FII investment in bonds

Attracting investment: Govt will also lay down plan for enhancement of FII debt limits

With the burgeoning current account deficit posing as one major challenge before the government,finance minister P Chidambaram on Saturday announced further liberalisation in investment norms in the corporate bond market for foreign institutional investors (FIIs).

The government will simplify the framework for FII debt limits,the allocation mechanism of debt limits and also lay down a plan for enhancement of these debt limits, he said at the National Editors Conference.

Under the plan,which would come into play from April this year,the existing sub-limit for FII debt investments would be merged into two broad categories.

While one category will consist of government securities of $25 billion,the second basket will consist of all corporate bonds of $51 billion.

At present,FIIs can invest up to $25 billion in corporate infrastructure bonds,$20 billion in other listed corporate bonds and $5 billion can be invested by other foreign investors such as sovereign wealth funds,pension and insurance funds.

The move is expected to help greater foreign investment into rupee denominated debt instruments and help develop rupee debt markets,Chidambaram said.

Further,giving large private sector investors legroom to plan their investments,the finance minister announced that the government will review the foreign investment limit in corporate bonds when 80 per cent of the current limit is reached.

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While the limit on government bonds will be enhanced as and when needed,he said,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 government excluding buybacks.

Chidambaram also announced that the current SEBI auction mechanism allocating debt limits for corporate bonds will be replaced with the system similar to the infrastructure bonds.

The CAD shot up to 5.4 per cent of the GDP in the quarter ending September 2012 and is expected to touch a record level for the full fiscal as well,prompting the government to do a comprehensive review of its foreign investment regulations in order to woo back investors.

FM promises next generation of reforms

Announcing further liberalisation of FII investment norms,finance minister P Chidambaram also said the government is steadily and surely working on next generation of reforms to put the economy back on high growth path.

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He said with liberalisation of FDI and other measures,the government has travelled considerable distance on the road to fiscal consolidation and reforms.

Promising more reforms,Chidambaram said that we are steadily and surely working on next generation of reforms.

The recent economic reforms include liberalisation of foreign direct investment norms in multi-brand retail and aviation,partial deregulation of diesel prices and capping supply of subsidised LPG.