FSDC sub-committee to discuss inflation-linked bonds tomorrow

Views of other sector regulators to be taken into account for formulating inflation indexed bonds, proposed in Union Budget for FY14

The sub-committee of the Financial Stability and Development Council (FSDC) is likely to discuss the modalities of inflation indexed bonds at its meeting tomorrow in Mumbai.

"The meeting will discuss, among other things, the inflation indexed bonds with a view to give investors option to hedge their investments against inflation," a Finance Ministry official said.

At the meeting of the FSDC sub-committee the views of other sector regulators would also be taken into account for formulating the inflation indexed bonds, which was proposed in 2013-14 Budget.

"The final structure of the bond would be decided by the Finance Ministry after taking into account the view of Sebi (Securities and Exchange Board of India), IRDA (Insurance Regulatory and Development Authority), PFRDA (Pension Fund Regulatory and Development Authority) and other regulators," the official said.

The FSDC sub-committee, headed by RBI Governor D Subbarao, discusses on a range of issues relating to the financial sector development and stability including issues relating to inter-regulatory coordination. The sub-committee includes financial sector regulators and DEA Secretary.

Seeking to make financial instruments attractive, Finance Minister P Chidambaram in the Budget 2013-14 proposed the introduction of such bond which would act as a hedge against inflation.

"In consultation with RBI, I propose to introduce instruments that will protect savings from inflation... These could be Inflation Indexed Bonds or Inflation Indexed National Security Certificates," he had said.

To reduce the demand for gold, the government is planning to make financial instruments more attractive. A high gold demand is pushing up the Current Account Deficit, which has risen to a record high of 6.7 per cent in the December quarter.