The Centre may raise the investment limit for foreign portfolio investors (FPIs) in government bonds to 10 percent of the outstanding, up from the present six percent, reports Business Standard.
The move is aimed at incorporating domestic bonds into the global bond market and may be announced in the coming Budget, the article quotes a source as saying.
Moneycontrol could not independently verify the report.
As of December 12, FPIs invested Rs 2.16 trillion in government bonds against the Rs 3.61 trillion limit.
This amount, however, is not enough for them to be included in the global bond market, which stipulates at least 15-20 percent cent of the outstanding stock to foreign investors to ensure liquidity and choice of derivatives to hedge investment risks.
The Finance Ministry has written to JPMorgan and Bloomberg-Barclays to advance such inclusion in their bond indices, the report stated.
The plan may also include sovereign bond issue, a move the Reserve Bank of India (RBI) previously opposed on basis of currency risk. The central bank is also against to raising the investment limit to 15 percent.
RBI wants the government to first check currency risk and cover for insurers before the limit is raised above 10 percent, which may take another year or two, the source added.
Bloomberg LP, Asia Securities Industry & Financial Markets Association (ASIFMA) and PwC are helping the government work out the roadblocks, the report said.
Entry into the global bond market would amplify investment inflows for India by as much as $50-125 billion, the article quotes Abhishek Gupta, Bloomberg’s India Economist, as saying.