FOREIGN INSTITUTIONAL INVESTORS (Syllabus: GS Paper 3 – Economy)

Context: Recently, the Reserve Bank of India (RBI) granted approval for Foreign Institutional Investors (FIIs) including insurance companies, pension funds, and sovereign wealth funds of various nations to invest in the country's Sovereign Green Bonds (SGrBs).

Foreign Institutional Investors (FIIs)

• About: These are institutional investors that invest in assets located in countries different from their own.
• Importance of FIIs: FIIs play a vital role in the economy, comprising large entities like investment banks and mutual funds, injecting significant capital into Indian markets.
• Influence on Market Trends: The actions of FIIs, such as buying securities, strongly impact market movements, contributing to both upward and downward trends.
• SEBI's Oversight: SEBI, the market regulator, oversees more than 1450 registered foreign institutional investors, underscoring their significant presence in the Indian financial landscape.
• Role in Market Performance: FIIs serve as both triggers and catalysts for market performance, stimulating investment across various investor classes and fostering growth in financial market trends.

Green Bond:

• Bonds issued by any sovereign entity, inter-governmental groups or alliances and corporates with the aim that the proceeds of the bonds are utilized for projects classified as environmentally sustainable.
• First ever green bond: Issued by the World Bank in 2008.

How does it help in green transition?

• Financial Inflow from Foreign Investors: Allowing FIIs to invest in India’s green projects attracts foreign capital, bolstering the nation's financial resources dedicated to sustainability.
• Expansion of Capital Pool: This initiative broadens the pool of available capital, facilitating the financing of India’s ambitious 2070 net zero goals.
• Support for Renewable Energy: With increased funding, India can accelerate the transition towards renewable energy sources, aiming for 50% of its energy to be sourced from non-fossil fuel-based options.
• Commitment to Carbon Reduction: Investment influx enables the fulfillment of Prime Minister of India’s commitment at COP26 to reduce India's carbon intensity by 45%.