Government officials are not in favour of the proposal of Reserve Bank of India (RBI) to restrict the investment of foreign institutional investors (FIIs) to the secondary market.
At a recent meeting, Department of Economic Affairs Secretary Arvind Mayaram, discussed the issue with DIPP Secretary Saurabh Chandra, Chief Economic Advisor Rahguram Rajan and RBI officials.
The government officials are of the view that FII investment in domestic market plays a significant role in supporting economic growth. They also feel that it would not be prudent to place any restriction of this kind as of now given the current stage of capital market.
RBI wants any investment by a foreign institutional investor (FII) in an Indian investee company over and above 24 per cent to comply with all the extant foreign direct investment (FDI) guidelines as regards pricing and entry point conditions.
In order to meet the widening current account deficit, government has been taking several steps to attract foreign investments. It may be recalled that during Oct-Dec 2012, current account deficit rose to 6.7 per cent of GDP. The CAD is the difference between inflow and outflow of foreign currency.
During 2012, FIIs invested $24.4 billion in the Indian market, about $5 billion below record purchases two years ago. So far in the calendar year 2013, they invested Rs 55,580 crore ($10.3 billion) into Indian equities.
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