India has introduced a set of financial reforms aimed at increasing foreign portfolio investor (FPI) participation in government securities (G-Secs) to deepen the country’s debt market and attract stable, long-term foreign capital. These measures are designed to broaden and diversify the investor base, which officials expect will enhance market liquidity, improve price discovery, and lower government borrowing costs.
Central to the reforms is the introduction of tax exemptions for foreign investors on interest income and capital gains from their investments in G-Secs. Previously, such income was taxable under Indian law. With the new rules taking effect from April 1, 2026, foreign portfolio investors and foreign institutional investors (FIIs) will no longer pay taxes on interest earned or on gains realized from the sale, transfer, exchange, or redemption of these securities. This competitive tax framework aims to make India’s debt market more attractive to global investors seeking stable returns.
The government has also expanded the list of G-Secs accessible under the Fully Accessible Route (FAR), allowing FPIs to invest in newly issued 15-, 30-, and 40-year government securities, as well as Sovereign Green Bonds (SGrBs). This broadening of eligible instruments offers investors a wider range of long-term debt options across different maturities, supporting the development of a smoother and more diversified yield curve.
To further promote foreign investment, the government has removed several investment restrictions previously limiting FPIs. These include the abolition of short-term investment limits, concentration limits, and security-wise investment caps. However, overall investment ceilings remain in place, capped at 6 percent of the outstanding stock of Central Government Securities and 2 percent of State Government Securities. Additionally, the previous distinction between ‘General’ and ‘Long-Term’ FPI investment categories has been consolidated into a single framework to simplify participation.
These reforms aim not only to supplement funding for infrastructure, manufacturing, urban development, and climate initiatives but also to enhance financial benchmarks and improve the transmission of monetary policy through deeper and more liquid debt markets.