India's another small step towards capital account liberalization

India's Finance Secretary Rajiv Mehrishi said yesterday that the government may denominate the foreign institutional investors (FIIs) debt quota in INR instead of the current USD denomination. 

This could effectively raise the FII limit by around 25% given that the current quota was calculated at 50 INR for every one USD. No time frame for the change was provided as yet. 
The potential change comes as India faces increasing pressure for a quota increase given that debt utilization is nearing quotas which were last revised in June 2013. The potential change marks another incremental step as India cautiously opens up its capital account. 

India's cautiousness comes as it balances the need to meet growing foreign appetite for its debt and managing its external debt levels. The capital liberalization process remains though a long drawn one, with RBI previously estimating that full convertibility of the INR is still 5-10 years away. 

USD-INR eased back to 63.40 after opening above the 63.60 level. Consolidation between 63.50-64.50 is anticipated in the near term, says Commerzbank.