India has long been doing everything wrong on capital controls for debt instruments.
The Mistry and Rajan reports have recommended opening up to rupee-denominated debt (i.e. reversing the existing bias in favour of offshore, dollar-denominated debt) by placing it on par with FII investments in equity. Also see appendix 1 (page 9) of this paper for a larger understanding of rupee denominated bonds held by foreign investors.
The quantitative restrictions on foreign investments in bonds were recently changed an inch in this direction - from $3.2 billion to $5 billion for FII investments in government bonds, and from US $1.5 billion to US $3 billion for FII investments in corporate bonds.
Quantitative restrictions are pretty abominable things: how do you ration out the overall limit between multiple claimants? SEBI chose to give out quotas on a first-come-first-served basis. Financial Express points out that the quota was consumed in seven minutes. See this very interesting SEBI press release.
How do you prevent financial firms from hoarding a quota and not utilising it? You enact more rules! Once a dirigiste policy framework is created, the maze of rules and restrictions tends to proliferate. SEBI has decreed that the winning firms must utilise their quota within 15 days. As a consequence, these financial firms will tend to become buy and hold investors to a greater extent in the bond market, and not contribute to liquidity and market efficiency to the fullest degree.