India nearing a big shift in its long-term objective of free access to debt

India nearing a big shift in its long-term objective of free access to debt

MUMBAI, Oct 14 Reuters - India is nearing a big shift in its long-term objective of having free access to and convertibility in its markets with a greater global integration and opener non-resident access to debt, Reserve Bank of India deputy governor T. Rabi Sankar said.

In a speech at a forex dealers event on Thursday, India has come a long way in achieving increasing levels of convertedibility on the capital account, Sankar said in a speech referring to the ability to convert local financial assets into foreign financial assets and vice versa.

Sankar said there was an effort to liberalize Indian portfolio investor flows into foreign debt further with introduction of fully accessible route FAR which places no limit on non-resident investment in specified benchmark securities.

Since over time, virtually all monies will fall under the FAR category, the move is unambiguously towards an eventual unfettered access for non-residents to Government securities, he added.

He also said the efforts to get the country included in global bond indexes and a move towards placing government securities under global custodians, once implemented will encourage debt flows in the future.

India's inclusion in global indexes could materialise by 2022, bringing potential inflows of between $30 billion and $40 billion, HSBC analysts estimate.

Despite the move to greater conversion, Sankar warned of risks including sudden reversals of flows among others that would need to be addressed.

The rate of change in capital conversionibility will increase with each of these and similar measures, said Sankar.

With that comes the responsibility to ensure such flows are managed effectively with the right combination of capital flows measures, macro-prudential measures and market intervention He said industry participants, particularly banks, need to prepare themselves for management of the business-process changes and global risks associated with capital convertibility, while the job of the central bank as regulator is somewhat different.

The job of a regulator is like the gas regulator in the kitchen; it cannot impregnate the quality of the dish, but can prevent the kitchen from blowing up, Sankar said.