Higher FII investment cap on govt debt soon

NEW DELHI: India will soon raise the limit for investment in government debt by foreign institutional investors ( FIIs), a finance ministry official has said.

The capital markets division of the ministry will analyse the impact of any reduction of the securities transactions tax (STT) by November 4, but any decision will happen only in the next budget.

"We will soon review the FII limit for government securities, but the final decision will be taken by the RBI," the official said. FIIs have almost utilised the total limit of $10 billion of Rs 43,650 crore available to them. After the last auction, the FII inflow in government securities stood at Rs 42,388 crore. As the global financial inflows have slowed down, measures that boost capital inflows are high on the agenda of the government.

The proposal figured in a meeting held by the capital markets division with stock exchanges, Sebi and department of revenue. Ahigher limit has become necessary after the recent auctions for government bonds has devolved on the primary dealers as investors have stayed away fearing the government borrowing may overshoot even the enhanced limit.

India has, in stages, liberalised FII investments into both debt and equities and is considering various other options to attract flows.

The finance ministry has already initiated discussions with financial sector regulators, including the RBI and the Sebi on allowing foreign individuals to invest directly in equities after allowing them to invest through mutual funds. While stock exchanges and Sebi had favoured removal of STT, the finance ministry is not in favour of removing it. The official said the revenue department was only in favour of cutting the rate and not removing it altogether.