Foreign investment in the Indian Government bond market

Securities and Exchange Board of India

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Date Published 2013
Primary Author Ila Patnaik
Other Authors Sarat Malik Radhika Pandey Prateek
Country India


A country witnesses currency exposure when locals hold a large amount of unhedged foreign currency denominated debt. However, In- dia's capital controls continue to be guided by concerns about debt and its maturity, rather than its currency denomination. Even though the 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, ma- turity 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 objec- tives of economic policy today. It recommends removal of quantative restrictions on foreign holding of Indian rupee denominated debt and suggests ways to move to a more ecient framework.ind

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