Under the new rules, foreign investors will be able to buy long-term bonds with a maturity of at least five years when they were issued, with at least one year to run when first purchased and a lock-in period of one year.
The ceiling on foreign investment in these types of bonds is being raised by $20 billion to $25 billion.
Foreign institutional investors may trade among themselves, but are barred from selling to domestic Indian investors during the lock-in period, under the rules.
Since the “Asian flu” financial crisis of 1998, emerging market governments have tried to balance their need for capital with rules designed to limit investors’ ability to buy and sell quickly in their markets. They believe so-called “hot money” distorts returns and the economy overall.
In August, qualified foreign investors were allowed to buy $3 billion of debt funds that invest in at least five-year infrastructure-related debt, the Securities and Exchange Board of India said.
The remaining $17 billion limit will apply to bonds with an initial maturity of five years or more at the time of issue, with at least three years left to run, and a lock-in period of three years.
The rules are expected to be finalized by Oct. 15.
In the meantime, while it is still tricky for retail investors to trade these bonds, they can at least get exposure to India’s infrastructure sector via the EGShares India Infrastructure ETF (NYSE:INXX):
Emerging Money provides insightful and timely information about the increasingly important world of Emerging Market investments. CNBC Emerging Markets Contributor Tim Seymour leads the team of Emerging Money to bring you cutting edge global news and analysis.