Govt To Wait Before Allowing Fiis Forward Cover On Equity

The finance ministry will study the experience of allowing foreign institutional investors (FIIs) the facility of forward cover on their debt investments before deciding on forward cover on their equity positions.

Finance secretary Montek Singh Ahluwalia told Business Standard that the first ever net outflow of FII investments witnessed in November needed to be viewed in the overall context of the downturn in the Asian markets. The government, he said, wasnt unduly worried over the outflow. Ahluwalia said he expected an improvement in the trend.

Just look at what happened in the Asian markets. The big thing is, the outflow in India was small, the finance secretary said.

He said while allowing FIIs forward cover on their debt investments was a step towards full capital account convertibility, the government would have to see how this went before taking a decision on equity positions.

Ahluwalia said the government, at the moment, had also taken a view of allowing mutual funds to invest in a limited way abroad, and there was no major step in the offing beyond that in the immediate future.

``At the moment, the position is that they can invest upto the limit abroad. The finance secretary was in Calcutta to attend the two-day US Investment Summit being held here.

Speaking on the primary market scenario, the finance secretary said there was no point in merely addressing the problem of sagging interest in primary markets in isolation. The problem, he said, was broader and there was no point in ad hoc steps aimed at merely propping up the primary market. ``We are not interested in ad hoc reforms. We have a reform agenda which we are putting in place, he said.

The finance secretary said the course of action on insurance sector reforms would have to wait until the new government took charge after the elections. He was speaking in the context of a large number of insurance majors visiting India in the hope of liberalisation of that sector.

The finance secretary also said the proposed petroleum tax code which was being put in place for petroleum companies would have to be pushed through only by way of tax proposals in the next Budget, once the new government came in.

``Since these are tax issues, these need Budgetary clearance, he said.