Record debt inflow junks plan to hike FII limit in G-Secs

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New Delhi | Published: April 9, 2015 4:15:21 AM

Foreign investment limit in government securities won’t be hiked for now due to strong fund inflows into the country, finance secretary Rajiv Mehrishi said on Wednesday.

Foreign investment limit in government securities won’t be hiked for now due to strong fund inflows into the country, finance secretary Rajiv Mehrishi said on Wednesday. “There is enough foreign inflows,” he said when asked about the reason for the government and the RBI not raising the FII limit in G-Secs.

According to the NSDL data, net foreign portfolio investments in debt have seen a massive jump to R1,66,127 crore in FY15, from a net outflow of R28,060 crore in FY14. At present, the $30-billion foreign investment limit in G-Secs has been fully subscribed. Out of the $30 billion, FIIs are allowed to invest $25 billion, whereas $5 billion is for long-term investors.

A day after the first bi-monthly Monetary Policy Statement for FY16, RBI governor Raghuram Rajan met finance minister Arun Jaitely in New Delhi. “A variety of issues were discussed,” Rajan said. He did not elaborate.

The RBI announced several steps to increase participation of the retail investors in the G-sec market, which is predominantly institutional in nature.

With banks gradually shedding their holding in G-Secs and concerns that an interest rate hike by the US Federal Reserve may result in capital outflows, there was a thinking in the government and the RBI to hike the FII limit in G-Secs by $5 billion.

In February, the RBI allowed foreign investors to reinvest their G-Sec coupon money back into the G-Secs, over and above the permissible $30-billion limit.

Higher interest differential, compared to most developed nations, contributed to G-Secs being a sought-after asset class for FPIs.

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