Govt comes out with measures to deepen G-Secs market, enhance FPI participation in equity segment

05 Jun 2026 Evaluate

With an aim to enhance ease of doing business in capital markets, the Ministry of Finance has undertaken series of reforms to make foreign investment in equities and Government Securities (G-Secs) more accessible, efficient, and globally competitive. These initiatives align with the Government’s commitment to strengthening India’s position as a leading global investment destination and deepening its capital markets. The measures aimed at enhancing ease of investment for individual Persons Resident Outside India (PROIs) and Foreign Portfolio Investors (FPIs), and to attract stable long-term foreign capital flows.

The Department of Economic Affairs (DEA) is notifying the Foreign Exchange Management (Non-Debt Instruments) (Third Amendment) Rules, 2026. The amendments seek to facilitate greater mobilisation of foreign portfolio capital by leveraging the existing onboarding framework for NRI/OCI investors. By simplifying onboarding and reducing compliance requirements, the reforms will enhance ease of doing business, attract a wider base of relatively stable individual foreign investors, and support increased and more stable foreign inflows into Indian equity markets.

To enhance FPI participation in G-Secs, the Government has decided to expand the list of securities eligible under the Fully Accessible Route (FAR) to include new issuances of G-Secs with tenors of 15, 30, and 40 years, as well as Sovereign Green Bonds (SGrBs) issued in FAR-eligible securities. With respect to FPI investments under General Route, it has been decided to remove the short-term investment limit, concentration limit, and security-wise investment limit by FPIs in G-Secs, while retaining the overall quantitative investment limits of 6% of the outstanding stock of Central Government securities and 2% of State Government Securities (SGSs). Further, the existing ‘general’ and ‘long-term’ sub-categories of investment limits will be merged into a single limit for investments in G-Secs and SGSs, respectively.

Recognising the importance of a competitive tax regime in attracting global capital, the government has decided to exempt FPIs from income tax on interest income and capital gains arising from investments in G-Secs. This measure aligns the tax treatment of G-Secs with that of several comparable jurisdictions. The exemption will apply to interest income and capital gains arising on or after April 1, 2026, in respect of FPI investments in G-Secs. A similar income-tax exemption has also been extended to the Bank for International Settlements (BIS) on interest income and capital gains from its investments in G-Secs.

These measures are likely to support stable and sustained foreign capital inflows, particularly from long-term institutional investors such as pension funds, insurance companies, and Sovereign Wealth Funds (SWFs). Collectively, the reforms aim to simplify market access, reduce operational complexities, and provide an investment experience comparable to leading global financial markets. They are expected to broaden the investor base for Indian equities and Government Securities, while encouraging greater participation by global investors seeking exposure to one of the world’s fastest-growing major economies.

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