The study, 'Foreign Investment in Indian Government Bond
Market', conducted by Sebi's Development Research Group (DRG), said that there is foreign appetite for rupee denominated debt, but India has placed many restrictions on foreign investment in rupee denominated bonds.
The study is part of an initiative by Sebi's Department of Economic and Policy Analysis and is aimed at undertaking "quick and effective policy-oriented research, essentially on subjects
"This will encourage contributing clarity and solutions to challenges" faced by the regulator.

However, market regulator Sebi said that the views expressed in the study are essentially of the authors and do not reflect its opinions.

The study, co-authored by Ila Patnaik, Sarat Malik, Radhika Pandey and Prateek, further said, "The existing framework of quantitative restrictions on foreign investment in government bond market should be dismantled."

In case restrictions need to be imposed at some stage, the existing quantitative restrictions could be replaced by percentage limits on foreign ownership.

Foreign ownership should be capped at a certain percentage of the outstanding government debt, such as at 10 or 15 percent of the total government debt.

"Under this framework, the government debt market should be made operationally similar to the equity market. The regulator should allow free investments till the prescribed limit at any time," it noted.

The 25-page study noted that Know Your Client (KYC) regime for foreign investors should be simplified and the current practice of submitting documents to multiple agencies should be done away with.

Sebi has as such been taking various steps in the recent past to simplify the KYC requirements for overseas investors. The study recommended that government should clarify the tax treatment of foreign asset managers who build permanent establishments in India.

The country has placed many restrictions on foreign investment in rupee denominated bonds. These include caps on the total as well as limits by investor class, maturity and issuer and have been implemented through a complicated mechanism for allocation and reinvestment.


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