India to Lift Foreign Investment Cap on Some Sovereign Bonds
Move will be the first “necessary step” for the inclusion in the global bond indexes: CEA Krishnamurthy Subramanian.
(Bloomberg) -- India will remove foreign investment limits on some sovereign notes as part of its attempts to get inclusion in global bond indexes, the country’s chief economic adviser said.
Issuing new debt with no limits on investments by foreigners will be the first “necessary step” for the inclusion in the indexes, Krishnamurthy Subramanian, the economic adviser, said in an interview in New Delhi on Monday. The country’s administration aims to fulfill other conditions for the inclusion in the fiscal year beginning April 1, the adviser said.
Finance Minister Nirmala Sitharaman announced the plan to remove the limits on Feb. 1 as the government tries to push through a record borrowing plan of 7.8 trillion rupees ($109 billion). The administration runs a budget deficit, and the country as a whole has a current account deficit, meaning it needs funds from abroad to cover the gap between what it earns in exports and spends on imports.
Overseas investors hold less than 4% of the almost 60 trillion rupees ($842 billion) of sovereign bonds issued by India, and the government has set a 6% limit on foreign ownership. Getting added into global indexes could help lure more foreign funds as Prime Minister Narendra Modi sets his sights on doubling the size of the economy.
India may sell notes worth $5 billion with no caps on foreign investment, Reuters had reported last week, citing finance ministry officials it didn’t identify.
Sovereign bonds have rallied since the announcement of lifting the investment limits, with yields on benchmark 10-year notes dropping by 14 basis points to 6.46% on Tuesday. The central bank’s decision to conduct long-term repo operations also contributed to the gains.
“There are trillions of dollars that passively track these global indexes, and even a small amount of weightage that Indian bonds get in them will bring in an entire supply of capital,” said Subramanian.
To contact the reporters on this story: Vrishti Beniwal in New Delhi at vbeniwal1@bloomberg.net;Kartik Goyal in Mumbai at kgoyal@bloomberg.net
To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, Unni Krishnan, Anto Antony
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