India tightens limits on foreign investment in T-bills; relaxes moves for other inflows

MUMBAI (Reuters): India imposed more restrictive limits on foreign investment in treasury bills and commercial paper on Monday, while easing and simplifying other restrictions to attract inflows to help plug a record current account deficit.

The Reserve Bank of India and the Securities Exchange Board of India announced details behind a recent government decision to overhaul restrictions on foreign investment in government and corporate debt.

As previously announced by Finance Minister P. Chidambaram, Indian regulators have divided debt instruments into two categories. Foreign investors are allowed to invest up to $25 billion in government debt overall and up to $51 billion in corporate debt, both authorities said.

At the short-term end of the market, however, foreign investors will be allowed to buy up only to $5.5 billion in treasury bills and up to $3.5 billion in corporate commercial paper. The authorities did not provide an explanation behind the new sub-limits. They removed sub-limits on all other types of bonds. Indian corporate debt previously sold to foreign investors at auctions in which they bid to buy up to certain limits, or quotas.

They will now be free to buy corporate bonds “on tap”, or at will, until 90% of the $51 billion limit is reached. At that point, the previous system of bidding for quotes will kick in for the remaining 10%.

Heavy oil and gold imports helped drive India’s current account deficit to a record high amounting to 5.4% of gross domestic product in the quarter to end-December.