Prelims Syllabus : Economics – Capital market Mains Syllabus : GS-III Indian Economy and Issues Relating to Planning, Mobilization of Resources, Growth, Development and Employment.
Why in News?
- In the Union Budget, it has been announced that certain specified categories of government securities would be opened fully for non-resident investors without any restrictions.
- As a follow up of the announcement, the Reserve Bank of India (RBI) has introduced a separate channel called “Fully Accessible Route (FAR)” to enable non-residents to invest in specified Government of India dated securities.
- ‘Specified securities’ shall mean Government Securities as periodically notified by the Reserve Bank for investment under the FAR route.
- FPI consists of securities and other financial assets passively held by foreign investors.
- The RBI has said that all new issuances of Government securities (G-secs) of 5-year, 10-year, and 30-year tenors will be eligible for investment as specified securities.
- Non Resident investors can invest in specified government securities without being subject to any investment ceilings.
- This scheme shall operate along with the two existing routes: The Medium Term Framework (MTF) for Foreign Portfolio Investment (FPI) in Central Government Securities (G-secs) and State Government Securities (SDLs), which was introduced in October 2015.
- The Voluntary Retention Route (VRR) encourages Foreign Portfolio Investors to undertake long-term investments in Indian debt markets.
Benefits of the Scheme:
- This would facilitate inflow of stable foreign investment in government bonds.
- This would facilitate inclusion in global bond indices.
- Being part of the global bond indices would help Indian G-secs attract large funds from major global investors, including Pension Funds.
- This will ease the access of non-residents to Indian Government Securities Markets.
What is meant by Government Security (G-Sec)
- A G-Sec is a tradable instrument issued by the Central Government or the State Governments.
- It acknowledges the Government’s debt obligation. Such securities are short term (usually called treasury bills, with original maturities of less than one year- presently issued in three tenors, namely, 91 day, 182 day and 364 day) or long term (usually called Government bonds or dated securities with original maturity of one year or more).
- In India, the Central Government issues both treasury bills and bonds or dated securities while the State Governments issue only bonds or dated securities, which are called the State Development Loans (SDLs).