The centre is considering an increase in the limit on the money foreign institutional investors (FIIs) can put in government bonds. The limit is now $10 billion. This is to ensure that a Rs 53,000 crore increase in borrowing planned by the government does not crowd out the private sector during the busy season.

“We could raise the FII limit in government securities. We will soon look at it,” a senior finance ministry official said on Monday.

Besides the cap on FII inflows in G-secs at $10 billion, their investments in corporate bonds are also capped at $15 billion and in long-term infrastructure bonds at $25 billion.

“The good news is that FII inflows in G-secs have been good even when net FII inflows have not been so good,” the official, said, adding this move would be considered if the FII inflows improved further.

In rupee terms, the cap on FII inflows in government bonds is Rs 43,650 crore.Of this, Rs 40,013 crore has already been received and an additional Rs 2,125 crore has been auctioned, taking the total to Rs 42,388.

The limit is obviously being approached. The government earlier announced increased borrowing during the second half of this year. The gross borrowing thus will be Rs 4,70,000 crore, instead of Rs 4,17,000 crore earlier decided.

On Monday, finance ministry officials held a high-level meeting with top executives of stock exchanges on the subject of reducing transaction costs. The measures discussed included lowering of securities transaction tax (STT) that accounted for 51 per cent of transactions costs in securities trading, particularly in the cash segment that has not picked up despite several efforts to boost it. High transaction costs in India act as a damper on increasing trading volumes on the exchanges.

The tax was abolished in the US in 1996 and subsequently in China. It was found that the abolition substantially improved trading volumes on stock exchanges in those countries, Bombay Stock Exchange CEO Madhu Kannan said.

The meeting was attended by top executives from the National Stock Exchange, MCX-SX and the United Stock Exchange, apart from officials from the Securitoes & Exchange Board of India (Sebi). With both NSE and BSE recently securing Sebi clearance for setting up their own SME exchanges, the government expected them to take off by the middle of December, the official said.

Modifications were made in 2008 in India to shift the transaction tax on normal trading to only on the premium at which a particular tarde was done. That helped trading volumes on Indian exchanges go up by 200 per cent value by 60 per cent in one year.

The finance ministry official in charge of capital markets, Thomas Mathew, said the government was looking at various options to rationalise the levy and reduce transaction costs. Though abolition of the levy could achieve the goal, the government is not considering it, as there are revenue implications.

Government gets Rs 8,000 crore from the levy. The proposal being considered is “how to find a balance between revenue and reducing the transaction costs,” the official said.

It is not yet clear if government could reduce the levy without amending the finance bill. “As I see it has to be part of the budgetary exercise,” he said, implying the any reduction may have to wait till the next budget. There was a proposal to see if the levy could be charged as an advance tax (as was the case in 2004), instead of it being treated as business expenditure by brokers as now.

The meeting also discussed measures to make the market vibrant in new products like interest rate futures that have not yet caught on in the same way as currency futures. The next meeting with the stock exchange CEOs is slated for November 4.