RBI announces Liberalisation Measures for Capital A/C

The Reserve Bank of India (RBI), in consultation with the Government of India has decided to introduce the following measures with immediate effect: RBI’s third move to arrest the declining INR against USD has little to reverse the trend in the short term. It may however be effective only in the longer term.



It has been decided to allow Indian companies in manufacturing and infrastructure sector and having foreign exchange earnings to avail of external commercial borrowing (ECB) for repayment of outstanding Rupee loans towards capital expenditure and/or fresh Rupee capital expenditure under the approval route. The overall ceiling for such ECBs would be USD10 billion.



The existing limit for investment by Securities and Exchange Board of India (SEBI) registered foreign institutional investors (FIIs) in Government securities (G-Secs) has been enhanced by a further amount of USD5 billion. This would take the overall limit for FII investment in G-Secs from USD15 billion to USD20 billion. In order to broad base the non-resident investor base for G-Secs, it has also been decided to allow long term investors like Sovereign Wealth Funds (SWFs), multilateral agencies, endowment funds, insurance funds, pension funds and foreign central banks to be registered with SEBI, to also invest in G-Secs for the entire limit of USD20 billion. The sub-limit of USD10 billion (existing USD5 billion with residual maturity of 5 years and additional limit of USD5 billion) would have the residual maturity of three years.



The terms and conditions for the scheme for FII investment in infrastructure debt and the scheme for non-resident investment in Infrastructure Development Funds (IDFs) have been further rationalised in terms of lock-in period and residual maturity.



Further, Qualified Foreign Investors (QFIs) can now invest in those mutual fund (MF) schemes that hold at least 25 percent of their assets (either in debt or in equity or both) in infrastructure sector under the current USD3 billion sub-limit for investment in mutual funds related to infrastructure.