India Eyes Foreign Investment Surge with 'Mezzanine' Instruments

The Indian government is exploring options to permit foreign investments through mixed equity and debt, aiming to boost foreign direct investment. This potential policy shift could attract an additional $20-$30 billion to the economy. The finance ministry is currently discussing this proposal, although no final decision has been made.

In response to a decline in foreign investments, the Indian government is considering a strategic shift that could attract billions in offshore funds. According to sources familiar with the matter, officials are discussing allowing foreign direct investment (FDI) through instruments combining equity and debt, known as 'mezzanine instruments.' Such a move represents a significant step toward further liberalizing India's capital market, which currently faces numerous restrictions due to the Indian currency's non-convertible status.

The proposal, which remains under discussion with the finance ministry, seeks to reverse the downtrend in FDI, which dropped to $71 billion this year. By integrating mezzanine instruments—widely used in international markets—the government hopes to bolster FDI, deemed a more stable capital source, despite India's robust economic growth.

If implemented, the new framework could inject an additional $20-$30 billion into the Indian economy. However, industry experts warn of potential currency volatility and pressure on the rupee. The finance ministry has yet to issue a formal comment, but the move underscores India's urgent need for $100 billion in annual FDI, as per Finance Minister Nirmala Sitharaman.

(With inputs from agencies.)