RBI governor counsels keeping FII debt limits

Reserve Bank of India (RBI) Governor Raghuram Rajan Tuesday counselled continuing with limits on overseas investments in debt to curtail the country's reliance on foreign debt.

"We are limiting our reliance on foreign debt. It's important we keep it this way," he said addressing the foundation day celebrations of a local college.

The RBI had, in July, raised the foreign institutional investors' (FIIs) debt limit by $5 billion to $25 billion, after the investments started nearing the ceiling of $20 billion.

"We have to be careful about this money because if we say, 'this is wonderful, they all like us, we follow tremendous policies and that's why we got this money', and we go and spend, we run large current account deficits based on these foreign borrowings," Rajan said.

"But this foreign borrowing cannot be taken for granted. At some point these investors will find greater usage of their money back home and they want to go out once again," he added.

The current account deficit (CAD), narrowed to 1.7 percent in the fiscal 2013-14, from an all time high of 4.8 percent in the previous fiscal.