The Economic Survey for 2006-07, presented by Finance Minister P Chidambaram in the Lok Sabha on Tuesday, said that on the capital and financial sector front it expects the government to 'scale-up' FII interest in Indian equity and debt and expects the FIIs to retain India as a preferred destination for portfolio investment.

Speaking further on it, Indranil Sengupta, chief economist, Kotak Institutional Equities, said, "This might be a good opportunity to letting more FIIs into debt instruments because that also means that you will be able to develop the corporate debt market, which is in the holy grail of Indian policy makers for sometime."

The survey also said that the pick-up in investment activity will continue and that money mopped-up through public issues, private placement, and euro issues will gather pace.

After recent initiatives to plug inadequacies, public issues will be seen as a major source of funds, it said.

The survey expects to post impressive growth in 2007, after four strong years of growth and says that measures need to be taken to revive the corporate debt market and encourage institutional investment.

According to the survey, commodity exchanges are expected to remain vibrant and the proposed changed to the 1952 regulation act, should ensure orderly conditions.

Highlights of economic survey on capital markets

• Expects "scale-up" in FII investment
• Number of foreign institutional investors rose by 27 per cent to 1044 at the end of 2006.
• India to remain preferred portfolio destination
• Mop-up through public issues, private placement to gather pace
• Global economy to post impressive growth this year
• Measures needed to revive corporate debt market
• Commodity exchanges to remain vibrant
• Sensex and Nifty indices rose by 46.7 per cent and 39.8 per cent, respectively, on a point-to-point basis during 2006.
• With stock indices soaring, investors wealth as reflected in market capitalisation also increased significantly by over 45 per cent during 2006.
• Assets under management of mutual funds increased by about Rs 124,000 crore to reach Rs 324,000 crore in 2006.

Economic Survey 2006-07: Complete Coverage