Govt easing debt investment rules for foreign funds: Chidambaram

The government will rationalise investment rules for foreign funds for purchase of government and corporate bonds in India in a bid to facilitate further inflows of foreign funds so as to bridge the widening current account surplus.

Beginning 1 April 2013, the government will remove all restrictions and sub-limits for FII debt investments in India, while keeping overall cap on sovereign debt at $25 billion and corporate debt limit at $51 billion, finance minister P Chidambaram said today.

He said a new tap system will be put in place to replace the existing auction procedure for foreign investment in corporate debt.

In order to allow large investors to plan their investments, he said, the government would review the foreign investor limit in corporate bonds when 80 per cent of the current limit is taken up.

The government will also enhance the limit on government bonds as and when needed, based on utlilisation levels, demand from foreign investors, our macro-economic requirements and a prudent offshore - on shore balance.

He said the annual enhancement of the government bond limit would remain within 5 per cent of the gross annual borrowing of the central government excluding buybacks. The finance minister said these changes will be made operational by 1 April 2013, he added.

The finance minister said the government is also taking fiscal and administrative measures to rein in inflation and to reduce the fiscal and current account deficits.

He said since current account deficient and fiscal deficit are distinct in the sense that both are financed through different sources, increased inflows of foreign capital would ease problems of current account deficit to some extent.

These steps are the latest in a series of policy adjustments being carried out by the finance ministry to offset the ill-effects of a soaring current account deficit that hit $22.3 billion by the middle of the current financial year.

India would need an estimated $75 billion of foreign capital in the next two years to fund the current-account deficit.