The Reserve Bank of India official today cautioned against foreign "investment tourists" in debt markets, highlighting concerns about short-term flows.

The comments from G. Padmanabhan, executive director at the RBI, came amid expectations that India will allow Euroclear settlements for government debt only for long-term investors.

He added that RBI will increase foreign investment limits in govt debt in "calibrated and gradual manner".

"The financial stability implication of 'investment tourists' exiting at a whiff of trouble has always to be kept in mind as we progress along the path of liberalization," said Padmanabhan in a speech uploaded by the RBI

He was speaking to the Primary Dealers Association of India on Saturday at their annual meeting.

The proposals for allowing international settlement of government bonds could increase attractiveness with foreign investors but also lead to creation of "NDF-like market overseas", said Padmanabhan.

Gross market supply of debt will remain elevated "in the foreseeable future" as the government will continue to run deficits despite fiscal consolidation plans, he said. (The Hindu)