FIIs and government securities market

The government is contemplating increasing the FII limit in government securities market. This it seems would allow the smooth sailing of the large government borrowing programme without crowding out the private sector borrowings. This is not a very convincing argument for broadly two reasons:

There is no pressure on the bank credit that there would be crowding out. Moreover, the first half is the slack season and private sector borrowings are not large. So, the stated reason for allowing FII does not appear to be genuine.



The other reason why this is not a welcome position is because of the redemption pressure would emante once these fair weather friends decide to repariate their savings. At that time there would be double whammy on debt side and foreign exchange side.



Hope good sense would prevail....