Voluntary Retention Route (VRR) refers to a channel brought about by the Reserve Bank of India (RBI) to enable Foreign Portfolio Investments (FPIs) to invest in India’s debt markets. All of the investments made via VRR are free from the macro-prudential and other regulatory prescriptions that are applicable to the Foreign Portfolio Investments made in the debt markets. The FPIs are required to voluntarily commit to the retention of a minimum percentage of their overall investments in India for a time span of their choice.
The VRR syllabi followed for the UPSC will be of immense importance in the UPSC Prelims. You must follow the details mentioned below with much attention.
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Impact of VRR of the Indian Currency
As a part of the UPSC Syllabus, the significance of VRR for the Indian currency will be important. Study the following points carefully:
- With an increase in the inflow of the FPI, the dollar will increase in the Indian economy. This will; appreciate the value of the Indian currency against the value of the US dollar.
- VRR is a channel that separately acts on the betterment of the Indian economy by attracting long-term as well as stable FPI in the country’s debt markets.
Proposal for Increasing the Overseas Investment Limit in VRR
The Voluntary Retention Route RBI guidelines had an existing overseas investment limit of Rs 90,630 crore, which has now been exhausted. This has recently made the Reserve Bank of India consider a proposal of raising the limit of overseas investment in VRR. For this, an additional investment limit of Rs 40,000 crore is proposed for adding to the existing guidelines. There is a likely chance of the VRR limit getting raised by the RBI, which would better the scope of bringing foreign money into the Indian local debt securities.
As an IAS aspirant, you are required to go through this section and keep a constant follow-up regarding the same. This will be important for the Current Affairs Quiz section in the UPSC examination.
Other Details of the Voluntary Retention Route
- Main objective: The main objective of the Voluntary Retention Route is on attracting long-term as well as stable FPI investments in the country’s debt markets while at the same time providing the FPIs operational flexibility for the management of their investments.
- Eligibility: Any entity that is registered with the Securities and Exchange Board of India (SEBI) as an FPI can be eligible for investment through Voluntary Retention Route.
Conditions for Investments
The conditions for investments through VRR that will be of importance for the IAS Exam are stated below:
- The total investment amounts through VRR shall get separately indicated for corporate debt (VRR-Corp) and Government securities (Central Government securities and the State Development Loans, VRR-Govt).
- The total investment amounts under VRR-Govt shall be subject to an individual allocation to the FPIs via an auction process. Similarly, the total investment amounts under VRR-Corp shall also be subjected to such an allocation.
- In the auction, the investment amount allocation to each FPI (known as the Committed Portfolio Size or CPS) shall be dependent on the retention period originally proposed by the FPI at the time of the bid.
- The investment amounts shall be in the face value terms of the securities.
- Following the allocation process in the auction, the FPIs must invest the allocated Committed Portfolio Size to the debt instruments. The investment must remain throughout the voluntary retention period. The minimum investment during the voluntary retention period must be 67% of the total Committed Portfolio Size.
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Frequently Asked Questions on Voluntary Retention Route UPSC
When was the Voluntary Retention Route introduced?
The Reserve Bank of India introduced the Voluntary Retention Route in the March of 2019. This was done when the Indian Rupee value was depreciating in comparison to the value of the US Dollar.
What is the minimum retention period for this investment?
The minimum retention period under investment through VRR is at present 3 years. This also gets regulated as per the decisions of the Reserve Bank of India in the case of each auction.
How is Voluntary Retention Route advantageous for the investors?
The benefit of investing through the Voluntary Retention Route is in the freedom of the same form the macro-prudential as well as other regulatory prescriptions. This factor, with the addition of the investment, can well be advantageous for the investors.