India plans to further relax rules for overseas investors buying sovereign debt in a bid to boost capital inflows as the rupee fell to a record, said two finance ministry officials with direct knowledge of the matter. The government may scrap the need for foreign funds to buy bidding permits while allowing them to purchase directly when there’s an offering, emulating a mechanism used to sell corporate bonds, the officials said, asking not to be identified before a public announcement. At present, foreign investors need to acquire permits to enable them to buy rupee-denominated government securities. Policy makers in India are raising caps and lifting restrictions on the purchases of local debt by foreigners to help attract investment and bridge a record current-account deficit that sent the rupee 4.8 percent down this year against the dollar. Overseas funds can buy as much as $25 billion of Indian sovereign bonds and $51 billion of corporate debt. The finance ministry officials said the proposed move to change the rules was prompted by requests from foreign investors, who wanted them to be simplified. In recent months, the government has reduced a levy on foreign investments in local bonds and opened up the retail and aviation industries to more investments. Finance Minister Palaniappan Chidambaram has traveled to major financial centers including New York, London and Tokyo this year, meeting institutional investors and spearheading efforts to attract foreign capital. The rupee plunged as much as 1.3 percent to 57.82 a dollar today, a record low. Reserves Overseas investment in India’s government and corporate debt has dropped $2.5 billion since touching a record high of $38.5 billion on March 21. Foreign-exchange reserves fell by $8.7 billion this year to $287.9 billion, heading for a third year of decline. Reserve Bank of India Governor Duvvuri Subbarao last week said India’s balance of payments is under stress. The shortfall in the current account, the broadest measure of trade, was probably about 5 percent of gross domestic product in the fiscal year through March 2013, he said last month. India may sell more than $20 billion of bonds backed by the government to citizens living overseas to support the currency and shore up its reserves, Indranil Sen Gupta, an economist at Bank of America Merrill Lynch, wrote in a research note yesterday. Other options include raising the cap on foreign investments in debt and sale of notes abroad directly by the government or through an infrastructure lending facility, according to his note. To contact the reporter on this story: Siddhartha Singh in New Delhi at ssingh283@bloomberg.net To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

Source