Thread by @anshgupta64

In monetary policy today, RBI has hiked the FPI limit for investment in Indian debt securities by 1 lakh crore (from 1.5 lakhs cr to 2.5 lakh crore) under the VRR.

What is VRR?

A short thread below.

VRR stands for the voluntary retention route.

As a foreign investor, a developing country like India, holds a lot of potential for investment, high growth and and regular demand for capital to run businesses.

However, foreign capital is volatile.

We saw this in our equity markets as well recently. So to prevent this volatility, there are a lot of restrictions on which foreign investors can hold Indian debt, how much and how they can invest.

However, such clauses restrict a lot of capital that can be used to finance growth.

So RBI in March 2019, proposed VRR for long term foreign investors. If someone opts for this route, they need to stay invested for at least 3 years. In return a lot of restrictions are waived.

This received a very positive response from the industry. The initial 1.5 lakh crores limit was exhausted and RBI has now revised this limit to 2.5 lakh crores.

Portion of this increased limit would be reserved for Government securities. This will create demand for the large borrowing program that govt has planned for next year.

Private corporates will also get access to foreign debt capital which will help them diversify liabilities.

This is a great move for the Indian financial sector and the economy as a whole.
But the message is clear, if you want to share in India’s growth, you have to be committed to the long term.