In order to boost foreign fund inflows (foreign institutional investors - FIIs) into India, a Sebi study on Wednesday suggested a slew of measures including simpler registration norms for overseas investors and removal of various quantitative restrictions in the government bond market.
The study, ‘Foreign Investment in Indian Government Bond Market’, conducted by Sebi’s Development Research Group (DRG), said there is foreign appetite for Indian rupee denominated debt, but India has placed many restrictions on foreign investment in rupee denominated bonds.
The study is part of an initiative by Sebi’s Department of Economic and Policy Analysis and is aimed at undertaking “quick and effective policy-oriented research, essentially on subjects contributing clarity and solutions to challenges” faced by the regulator. However, market regulator Sebi said that the views expressed in the study are essentially of the authors and do not reflect its opinions.
Co-authored by Ila Patnaik, Sarat Malik, Radhika Pandey and Prateek, the study further said: “The existing framework of quantitative restrictions on foreign investment in government bond market should be dismantled. “This will encourage greater engagement of foreigners in the government debt market.” In case restrictions need to be imposed at some stage, the existing quantitative restrictions could be replaced by percentage limits on foreign ownership.
Foreign ownership should be capped at a certain percentage of the outstanding government debt, such as at 10 or 15% of the total government debt. “Under this framework, the government debt market should be made operationally similar to the equity market. The regulator should allow free investments till the prescribed limit at any time,” it noted.