FII rules to be rationalised; reforms top agenda: Chidambaram

Union finance minister P Chidambaram yesterday announced a relaxation of the rules for foreign institutional investors (FIIs); adding that the government is "surely and steadily" working on a ''next generation'' of reforms to put the economy back on a high growth path.

Addressing a National Editors' Conference in New Delhi, he said rules have been rationalised for investment by FIIs in government securities and corporate bonds.

"There were a number of sub-divisions, and in order to rationalise, it is proposed to merge the existing sub-limits and create only two broad categories," he said.

One category or basket, he said, will consist of government securities of $25 billion; and the second basket will consist of all corporate bonds of $51 billion.

"Therefore from 1 April, there will two baskets, one of $25 billion for government securities and another of $51 billion for all corporate bonds," he said.

Promising more economic liberalisation, Chidambaram said, "We are steadily and surely working on next generation of reforms."

Chidambaram asserted that the controversial food security bill will be enacted. "I am confident it will be passed soon by Parliament, possibly in the budget session itself," he said.

The bill has been frowned upon by many economists as well as cabinet ministers, notably agriculture minister Sharad Pawar. They argue that the government cannot afford to foot such a huge subsidy, particularly with sieve-like public distribution systems.

Asked about West Bengal Chief Minister Mamata Banerjee's constant crib that the centre is depriving her state of funds, Chidambaram said he has never favoured the idea of special packages for states; but added that the new finance commission has been asked to look into the problems of debt-stressed states.

Chidambaram also announced that the current auction mechanism for allocating debt limits for corporate bonds will be replaced with a system similar to the infrastructure bonds.

"In order to allow large investors to plan their investments, government will review the foreign investment limit on corporate bonds when 80 per cent of the current limit is reached," he said. The limit on government bonds will be enhanced as and when needed.

"I am happy to state that the annual enhancement of the government bond limit will remain within 5 per cent of the gross annual borrowing of the central government excluding buybacks," he further announced.

The finance minister seemed unable to avoid the dreary suggestion of the Eurozone crisis for the collapse of the Indian economy. He said the European crisis had impacted investment around the world, and India was no exception.
 
"The risk to global stability is the Eurozone crisis. There is no definitive solution still in sight." This had led to sharp deceleration in exports, Chidambaram said.