Indian capital controls are proving deeply insufficient as overseas investors continue to snap up corporate bonds in the country. That exuberant demand is undermining the government's attempts at financial stability.
India currently caps total foreign investments into corporate bonds at 2.44 trillion Indian rupees ($38.1 billion). When overseas buying crossed 92 percent of that quota in July, the government suspended the issuance of offshore rupee-denominated bonds until foreign holding falls back below that level.
Instead of slowing down, buying enthusiasm gained more momentum: foreign ownership of Indian corporate bonds pushed past 96 percent of the allowed cap and has stayed above 99 percent for most of the last one month, according to data by the country's National Securities Depository Limited.