Cap on Investment by FII Increased

The Indian Government on 23 Sept 2010 increased the cap on investment by foreign institutional investors (FIIs) in the country's debt and bond markets by $10 billion to $30 billion. The government's objective is to bridge the financing gap in infrastructure business and ensuring India's growing attractiveness as an investment destination. The current limit of FII investment in government securities was increased by $5 billion thereby raising the cap to $10 billion. The incremental limit of $5 billion would be invested in securities with residual maturity of over five years.  The current limit of FII investment in corporate bonds was increased by $5 billion, raising the cap to $20 billion. The incremental limit of $5 billion in the corporate bonds arena would be invested in corporate bonds issued by companies in infrastructure sector with residual maturity of over five years. FIIs therefore would now be permitted to invest up to $5 billion more in both government bonds and corporate papers after they reach the existing cap of $5 billion and $15 billion in the two instruments, respectively. Also the FIIs would be allowed to invest $5 billion in bonds of infrastructure companies and government bonds with a residual maturity of over five years.

The government’s policy on FII was reviewed in the context of India's evolving macroeconomic situation, its increasing attractiveness as an investment destination and need for additional financial resources for India's infrastructure sector while balancing its monetary policy. A hike in the ceiling was necessary as FIIs are already close to touching the existing cap of $20 billion in investment. Thus the FII investment cap is expected to provide avenues for increased investments in debt securities, help investment in the infrastructure sector and the development of government securities and corporate bond markets in the country.