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SEBI study suggests simpler registration rules for FIIs

Though there is foreign appetite for rupee denominated debt, India has placed many restrictions on foreign investment in rupee denominated bonds

January 01, 1970 5:30 IST | India Infoline News Service
The Securities and Exchange Board of India (SEBI) on Wednesday released the Development Research Group (DRG) Study titled, “Foreign Investment in Indian Government Bond Market”.

The study is co-authored by Ila Patnaik, Sarat Malik, Radhika Pandey and Prateek.
A country witnesses currency exposure when locals hold a large amount of unhedged foreign currency denominated debt. However, India's capital controls continue to be guided by concerns about debt and its maturity, rather than its currency denomination, the study said.

Though there is foreign appetite for rupee denominated debt, India has placed many restrictions on foreign investment in rupee denominated bonds.

These include caps on the total as well as limits by investor class, maturity and issuer and have been implemented through a complicated mechanism for allocation and reinvestment.

This paper presents the logic and rationale for why these restrictions fail to meet the objectives of economic policy today. It recommends removal of quantitative restrictions on foreign holding of Indian rupee denominated debt and suggests ways to move to a more efficient framework.

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