FPIs are currently capped at 5 per cent of the total outstanding government dated securities, and own 4.5 per cent. Market observers say that an increase is necessary to make up for a reduction in demand from domestic banks.
In a report dated March 15, research firm Nomura had said that a 1 per cent increase in the FPI cap, from 5 to 6 per cent would increase the limit by Rs 800 billion in absolute terms. “This, in our view, would be meaningful for FPI bond demand and should support bond markets in 2018-19,” it had said.
According to data on the National Securities Depository’s website, as of March 26, FPIs have invested Rs 1.84 trillion in dated central government securities, thus utilising 96.4 per cent of the upper limit of Rs 1.91 trillion. Long-term FPIs have utilised nearly 82 per cent of the upper limit of Rs 651 billion.
On Monday, the Centre had said it would be borrowing Rs 2.88 trillion in April-September 2017, around 47.5 per cent of the full year budgeted estimate of Rs 6.05 trillion.
Economic Affairs Secretary Subhash Garg had said the Centre would draw an additional Rs 250 billion from the National Small Savings Fund (NSSF) to finance
the fiscal deficit for 2018-19. The RBI will reduce its planned buybacks of government securities by Rs 250 billion.
Hence, the gross borrowing for the year will be reduced by Rs 500 billion to Rs 5.56 trillion. Net borrowing, which was budgeted at Rs 4.62 trillion, will see a reduction of Rs 250 billion on account of higher amount drawn from the NSSF. Net borrowing for 2018-19 will now be Rs 4.27 trillion.