The finance ministry is in agreement with the Reserve Bank of India’s (RBI’s) proposal to set the foreign institutional investment (FII) limit in government securities in rupee terms, instead of US dollar terms as at present. If the proposal is implemented, FIIs could get more headroom for purchases.
“We have got a proposal three months back from the RBI to convert the FII limit in government securities in rupee terms. I favour the proposal,” finance secretary Rajiv Mehrishi said on Friday.
The rupee was much stronger when the FII limit in G-secs was set at $30 billion. “But at today’s rupee level, the FII effective limit is about $24 billion (Rs 1.5 lakh crore),” Mehrishi said. If the FII limit is set in rupee terms, the FII limit in the government securities would be Rs 1.9 lakh crore, which would mean that the step could effectively increase debt limits by another Rs 37,000 crore ($5.8 billion).
Currently, the overall foreign investment cap in G-secs is almost fully subscribed. Of $30 billion cap, $25 billion is for portfolio investors and $5 billion for long-term foreign investors such as sovereign wealth funds, pension, insurance funds and central banks.
The rupee closed at 63.64 against the US dollar on Friday. It had touched an all-time low of 68.85 in August, 2013 as the country was facing several economic problems such as high current account deficit and the global economy was in a slump.
Setting the FII limit in rupee in G-sec won’t require continuous adjustment to the dollar.