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NRI Biz Matters: Foreigners can invest in Indian Government bonds

Positive real yields, low rupee volumes, a supportive macroeconomic backdrop are some key factors that make the bonds attractive

Question: Is it permissible for non residents to invest in Indian Government bonds? If so, what are the prospects?

Answer: Indian Government bonds can be acquired by foreign investors. In fact, since October 2023, non residents have invested almost $11 billion in these bonds and an additional $5 billion through dollar-settled, rupee-denominated supranational bonds. Last month, $2.3 billion were invested after the Indian Government bonds made their entry into the J.P. Morgan Emerging Market Bond Index. The inclusion will lead to index-tracking funds purchasing Indian bonds to align their portfolios with the index, creating immediate demand. This development will reduce the cost of long term borrowings for businesses, provide stability to the rupee and enhance the country’s balance of payments position. Further, it will help to improve the visibility of Indian bonds, attracting capital from a wide range of global investors. It is estimated that around $25 billion of foreign investment will flow into India during the current financial year ending in March 2025. The key factors that make the Indian Government bonds attractive for foreign investors are positive real yields, low rupee volumes, a supportive macroeconomic backdrop, strong defences against market volatility, and fiscal consolidation.

Question: The Indian Government’s commitment for providing housing to all citizens remains unfulfilled. Are any steps being taken to expedite construction of new houses which would benefit the vulnerable sections of society?

Answer: Over the last 10 years, more than 42 million new houses have been constructed under the Pradhan Mantri Awas Yojana. This is not enough to meet the housing needs of all families in India. Therefore, it has been decided this year to give financial assistance for the construction of 30 million additional housing units which would augment the supply of affordable housing. During the current financial year, Rs807 billion is allocated from the budgetary resources whereby the Central Government will contribute Rs100,000 to Rs267,000 per house under different verticals of the scheme. This decision is expected to have a significant multiplier impact on the economy as the real estate sector is linked with more than 250 ancillary industries. Further, the real estate sector is the second largest provider of jobs to skilled, semi-skilled and unskilled wage earners. Constructing new houses in urban and rural areas and providing last-mile connectivity through transportation projects will open a number of untapped markets, leading to employment opportunities throughout the country and decongestion of metros and cities. Buyers of small houses are also given incentives through interest rate subventions. Developers of affordable housing projects have been given tax deduction benefits under the income-tax law by way of allowance of capital expenditure incurred on the projects.

Question: I have been receiving constantly unsolicited advice on investing in stocks and shares. Are there any regulatory safeguards to protect the interest of gullible investors? I also want to know what the delisting guidelines are, as I own some Indian shares of companies which may be delisted.

Answer:The Securities and Exchange Board of India (SEBI) has prohibited registered advisers from entering into any agreement or arrangement with unregistered influencers who directly or indirectly assure returns on investment. The guidelines have barred regulated entities from partnering with anyone who directly or indirectly provides advice or recommendations or makes any implicit or explicit claim of return on investment. This guideline aims to safeguard investors from getting misleading information and ensure that regulated entities are kept clear of such malpractices. As far as the delisting procedure is concerned, a fixed price process is provided as an alternative to reverse book building. Under the new regulation, it is mandatory to offer a minimum 15% premium over the floor price for delisted shares. Further, the threshold of counter offer has been reduced from 90% to 75% subject to the condition that at least 50% of the shareholders tender their shares.

H. P. Ranina is a practising lawyer, specialising in corporate and tax laws of India.