The government bond yields ended flat on Wednesday ahead of the Parliament vote on retail FDI. India is facing large fiscal as well as current account gaps and it hopes to attract foreign investors with measures such as allowing FDI in multi-brand retail.
Fitch Ratings, which has a negative outlook on India, has again warned that the country may be downgraded to junk status if the government loosens fiscal policy in the run-up to the elections due by 2014, or sees a prolonged slowdown in economic growth.
“A positive vote will have a direct impact on rupee. The additional limit auction in government bonds will be then well received by foreigners,” said Debendra Dash, a dealer at Development Credit Bank (DCB) in Mumbai.
The government will raise the limit for foreigners by $5 billion, a government source said. The benchmark 10-year bond yield ended unchanged at 8.17%.