"We want a steady increase in limits, a measured increase so that we understand what is happening and we see the market develop as these limits are increased. We do think FPIs are extremely important to market development," he told analysts in a conference call today.
With FIIs reportedly exhausting over 95 per cent of the USD 25 billion investment limit in government debt, Rajan hinted that there is no need to increase the limit immediately.
"As short-term debt rolls over, that frees up more space in government bonds and so it's not as if that space is completely shut out and over time we will re-examine and see what we can do," he said.
It could be noted that the RBI had in July increased the investment caps for FIIs in government securities by USD 5 billion to USD 25 billion, within the total limit of USD 30
Meanwhile, RBI Deputy Governor Urjit Patel also said that the country is not in talks with global bond indices for an inclusion in the emerging markets category, even though there are obvious advantages like attracting more funds.
"Main issue which the index people are asking is to totally remove the ceiling on FPI investment in government bonds. Because of our capital account management issue, we are not in a position to do that but in a progressive manner we will increase," Deputy Governor H R Khan explained.
Patel said that the country "did get a fillip" after the upgrade in revision in the outlook by S&P and added, "I think we are in pretty good shape without being a part of the index."