In order to attract long term stable foreign capital inflows and to broad base the non resident investor base in Indian debt security market, it has been decided to accord preferential treatment to long term investors such as Sovereign Wealth Funds and pension funds for allocation of debt limits in Government Securities and Corporate bonds in terms of RBI’s A. P. (DIR Series) Circular No. 135 dated June 25, 2012 and Circular No. 80 dated January 24, 2013.

The Government has been making concerted efforts to attract greater foreign investment into India with special thrust on availability of off-shore funds for infrastructure development. In order to attract greater foreign investment to the infrastructure sector, following measures have been taken:

i) The limit for foreign investment in long term corporate bonds in the infrastructure sector has been enhanced from USD 5 billion to USD 25 billion.

ii) The USD 25 bn scheme for foreign investment in long term infra bonds has been gradually liberalized by inter-alia reducing residual maturity criteria and removing lock-in period restriction.

iii) The debt limit allocation mechanism for FIIs has been rationalized by allowing reinvestment facility to FIIs; reduction in utilisation period of debt limits and allowing to avail debt limits upto 90% without obtaining SEBI approval in case of long term infra bonds.

iv) Infrastructure Debt Funds (IDFs) have been set up to accelerate and enhance the flow of long term debt in infrastructure projects. To attract off-shore funds into IDFs, withholding tax on interest payments on borrowing by IDFs has been reduced from 20% to 5%.

v) Further, the rate of withholding tax has been reduced from 20% to 5% on interest payments in respect of foreign currency borrowings and long term infrastructure bonds.

This was stated by the Minister of State for Finance, Shri Namo Narain Meena in a written reply to a question in the Lok Sabha today.

DSM/RS/ka

(Release ID :93333)

Preferential treatment for long term investors expands infrastructure debt access and lowers withholding tax to attract offshore capital. Preferential treatment for sovereign wealth funds and pension funds reallocates debt limits in government securities and corporate bonds to attract long term offshore capital. Complementary liberalisations increase foreign investment ceilings for long term infrastructure bonds, relax residual maturity and lock in requirements, rationalise debt limit allocation with a reinvestment facility and eased utilisation, and permit higher immediate use of debt limits for qualifying long term infra bonds without prior approval. Withholding tax on interest payments for Infrastructure Debt Funds and specified long term foreign borrowings has been reduced to incentivise offshore investment into infrastructure debt.