Discussions on to further liberalise FDI policy: Pranab Mukherjee

Discussions are underway to further liberalise the foreign direct investment (FDI) policy, finance minister Pranab Mukherjee announced today.

Presenting the general budget 2011-12, he said all prior regulations and guidelines have earlier been consolidated into one comprehensive document in order to make FDI policy more user friendly.

This is reviewed every six months and the last review was released in September last year.

Besides, he said, the security and exchange board of India (SEBI) registered mutual funds would be permitted to accept subscriptions from foreign investors to meet the KYC requirements for equity schemes.

This would liberalise the portfolio investment route and enable Indian mutual funds to have direct access to foreign investors in Indian equity market, which had hitherto been restricted to only foreign institutional investors (FIIs), sub-accounts registered with SEBI and NRIs.

The budget also proposes to raise the FII limit for investment in corporate bonds to enhance the flow of funds to the infrastructure sector.

Mukherjee said the limit for investment in corporate bonds, with residual maturity of over five years issued by companies in infrastructure sector is being raised by $20 billion which would now be $25 billion.

This would raise the total limit available to FIIs for investment in corporate bonds to $40 billion.

Since most of the infrastructure companies are organised in the form of special purpose vehicles, FIIs would also be permitted to invest in unlisted bonds with a minimum lock-in period of three years. However, the FIIs would be allowed to trade amongst themselves during the lock-in period.