Liquidity in abundance

The Government’s decision to raise the investment cap for FIIs in the debt space by $5 billion each in Government securities and corporate bonds is a welcome step, keeping in view the interests FIIs are showing in both Indian debt and equity markets. Effectively, the FII investment limit on G-secs has been raised to $10 billion from $5 billion and that on corporate bonds stands raised to $20 billion from the earlier level of $15 billion. Government had taken the same initiative earlier, during the financial crisis in 2009, to enable higher FII investment flows into the corporate debt market. This time, the incremental limit of $5 billion is to be invested in bonds and securities with a residual maturity of over five years. The corporate bonds should be issued by companies in the infrastructure sector. The aim is to ensure greater participation of FIIs on a longer term basis.

The increased investments would offer avenues for increased FII investment in debt securities, help investments in infrastructure sector and development of the Government securities and corporate bond markets in the country. Though there seem to be some uncertainty about the residual maturity above five years as it would need certain technical mortalities to be sorted out. But, this should not hamper the overall interest and we should see money coming in gradually. The corporate bond space would be spared of this as it already has residual limits.

The willingness to increase the limits in order to let the money come in, is certainly a positive move on the Government’s part. The policy would add to the evolving macroeconomic situation, its increasing attractiveness as an investment destination and need for additional financial resources for its infrastructure sector while balancing its monetary policy.