(Updates to add finance secretary's comments, new quote, and
details on foreign flows)
MUMBAI/NEW DELHI, June 9 India will likely raise
the foreign investment limit in government debt soon, as almost
all the allocation has already been taken up as overseas buyers
pile into the country's financial markets, said four officials
with direct knowledge of the government's thinking.
The current cap is 995.46 billion rupees ($16.86 billion).
As of Friday, foreign investors owned 886 billion rupees
worth of government debt, or 89 percent of the full available
allocation, following a surge in inflows due to improving
government finances and optimism about Narendra Modi's recent
election as prime minister.
Once the limit reaches 90 percent, foreign investors are
only allowed to buy debt under a more cumbersome auction bidding
"We will certainly look to raise the limit once it is closer
to exhaustion," said one of the officials involved in the
process, adding the government could allow foreign investors to
invest another $5 billion in the local debt.
The finance ministry will decide on the matter after
consultations with the Reserve Bank of India and capital markets
regulator Securities And Exchange Board of India, the sources
said, without providing a specific timeline.
The sources declined to be identified as they were not
authorised to talk to the media about the plans.
NO PLAN TO RAISE LIMITS FOR NOW
Finance Secretary Arvind Mayaram told domestic news agency
Cogencis that the government had no plan to raise investment
limits for now.
"Why would we hike the limit just because they have reached
the limit...The limits are set because of due considerations. At
the moment there is no thought in changing the limits," Mayaram
was quoted as saying to Cogencis.
Mayaram did not reply to requests for comments from Reuters.
India's 10-year benchmark bond yield fell 3
basis points to 8.49 percent after the Reuters news, but the
yield then rose to 8.57 percent on the Mayaram comments to
Cogencis. It closed at 8.51 percent on Friday.
Foreign investors bought a net $425.43 million worth of debt
on Friday, their biggest daily purchase since May 23 and
bringing their total this year to $8.6 billion.
Under current rules, India allows all types of foreign
investors to buy up to $20 billion of government debt, although
the dollar amount depends on the exchange rate.
The total foreign investment limit is $30 billion, with the
remaining $10 billion for investors such as foreign central
banks, sovereign wealth funds, insurance funds and pension
Investors have been expecting the government would raise the
allocation for foreign investors once the 90 percent mark was
Last year, New Delhi had said it would increase the foreign
investment cap in government bonds, depending on demand and
economic requirements. However, it said the annual enhancement
would be within 5 percent of the gross annual borrowing of the
federal government, excluding buybacks.
But the government is still reluctant to fully free up
limits for its debt markets, an objection that has slowed down
the process of inclusion into global benchmark indices such as
those run by J.P. Morgan.
The current limit means foreign investors own only about 5
percent of the total Indian government bond market.
The country last raised the amount of government debt that
foreign investors can buy by $5 billion in June last year.
The renewed interest comes on the back of hopes that Modi
will unveil big reforms, such as accelerating investments and
clearing infrastructure projects, to boost an economy that
posted two consecutive years of below 5 percent growth - the
worst slowdown in more than a quarter century.
$1 = 59.0600 Indian rupees)
(Reporting by Himank Sharma, Rajesh Kumar Singh and Suvashree
Dey Choudhury; Editing by Rafael Nam & Kim Coghill and; Ron