Indian Government unveils measures to revive economy

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June 26, 2012

Government announced steps including hike in FII limit into sovereign debt and liberalising overseas borrowing norms for exporters, but failed to arrest slide in rupee and stock markets.

The foreign institutional investors (FIIs) can now invest USD 20 billion into government securities (G-Sec), against the present limit of USD 15 billion.

June 26, 2012

Government announced steps including hike in FII limit into sovereign debt and liberalising overseas borrowing norms for exporters, but failed to arrest slide in rupee and stock markets.

The foreign institutional investors (FIIs) can now invest USD 20 billion into government securities (G-Sec), against the present limit of USD 15 billion.

Within this limit, sovereign wealth fund, insurance funds, pension funds, foreign central banks and multilateral agencies can participate. The lock-in period for FII investment up to USD 10 billion into G-Secs has been reduced to three years from five years, according to Finance Ministry. The much-hyped measures, aimed at increasing overseas capital inflows, fell short of market expectations. The rupee touched a record low of 57.92 against a dollar, immediately after simultaneous announcements by RBI and the government.

The stock market too gave away the early gains and the Sensex closed 90 points lower. Companies in the manufacturing and infrastructure sectors with three-year track record of forex earnings, can now raise external commercial borrowings (ECBs) up to USD 10 billion a year. "We are looking at companies which have a large export potential to access money from abroad and have a large investor base," Joint Secretary in the Finance Ministry Thomas Mathew told reporters.

As a further liberalisation measure, individual overseas investors can now bring in up to USD three billion into mutual fund debt schemes which invest up to 25 percent of their assets in infrastructure. Earlier, the limit was 100 percent. Planning Commission Deputy Chairman Montek Singh Ahluwalia said, "We will soon see (more) measures … On implementation of large projects on which the Prime Minister has set up new mechanism to move things faster.

With Monday's measures, the indicative annual ECB ceiling for Indian companies now stands at USD 40 billion, up from USD 30 billion. India Inc has raised USD 34.40 billion by way of ECBs in 2011-12 fiscal. In the April-May period of the current fiscal, the companies have already mopped up USD 5.97 billion. Besides, the government Monday also rationalised norms for FII investment in long term infrastructure bonds. At present FIIs can invest USD 25 billion in such bonds.

Of the USD 25 billion, they can invest USD 10 billion in Infrastructure Debt Fund (IDF), with a reduced lock-in period of one year, from three years, the finance.


Courtesy: businesstimes