India Loosens Rules for Foreign Investors

India's federal government on Sunday moved to allow qualified foreign investors to invest directly in local share markets, in yet another move aimed at attracting foreign capital flows amid a shaky global economy.

Qualified foreign investors, or QFIs, will now be able to invest individually up to 5% of the capital of the Indian company. Cumulatively, QFIs can invest up to 10% of the capital of the company being invested in, the government said in a statement.

The new rule will be effective Jan 15.

Previously, only foreign institutional investors and non-resident Indians were allowed to directly invest in local shares.

However, with capital inflows drying out due to the global economic uncertainty, the government is finding it harder to fund its gaping current account deficit.

Asia's third-largest economy traditionally runs a wide current account gap, but authorities hadn't been too worried as they had relied upon heavy capital inflows to fund the deficit.

The government has taken a string of measures to revive foreign investor interest in the local economy, which has been managing a moderately fast growth pace despite the global slowdown.

In its annual budget, the federal government had allowed QFIs to invest in local mutual funds. With the new rules, they will be able to buy local shares directly.

The government has also eased foreign investment rules in local debt, allowing more foreign capital to flow into its sovereign bonds.

The government said capital markets regulator Securities and Exchange Board of India and banking regulator Reserve Bank Of India are expected to publish the rules to make them effective on Jan. 15.

Source: http://online.wsj.com/article/SB10001424052970203550304577133941594457930.html