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Foreign investment in the Indian Government bond market

  • Patnaik, Ila


    (National Institute of Public Finance and Policy)

  • Malik, Sarat

    (Securities and Exchange Board of India)

  • Pandey, Radhika

    (National Institute of Public Finance and Policy)

  • Prateek

    (Securities and Exchange Board of India)

A country witnesses currency exposure when locals hold a large amount of unhedged foreign currency denominated debt. However, India's capital controls continue to be guided by concerns about debt and its maturity, rather than its currency denomination. Even though the there is foreign appetite for rupee denominated debt, India 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. This paper presents the logic and rationale for why these restrictions fail to meet the objec- tives of economic policy today. It recommends removal of quantative restrictions on foreign holding of Indian rupee denominated debt and suggests ways to move to a more efficient framework.

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Paper provided by National Institute of Public Finance and Policy in its series Working Papers with number 13/126.

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Length: 25
Date of creation: Sep 2013
Date of revision:
Handle: RePEc:npf:wpaper:13/126
Note: Working Paper 126, 2013
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  1. Patnaik, Ila & Shah, Ajay, 2011. "Did the Indian capital controls work as a tool of macroeconomic policy?," Working Papers 11/87, National Institute of Public Finance and Policy.
  2. Nicolas E. Magud & Carmen Reinhart & Kenneth Rogoff, 2007. "Capital controls: myth and reality, a portfolio balance approach to capital controls," Working Paper Series 2007-31, Federal Reserve Bank of San Francisco.
  3. Chikako Baba & Annamaria Kokenyne, 2011. "Effectiveness of Capital Controls in Selected Emerging Markets in the 2000's," IMF Working Papers 11/281, International Monetary Fund.
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