Govt opens wider doors for foreign investors; major push for G-Sec market, equity inflows

In a significant move to attract long-term overseas capital and deepen India’s financial markets, the Union government has unveiled a fresh set of reforms covering both the equity and government securities segments. The measures seek to simplify investment norms for foreign investors, expand access to government bonds, and make India’s capital markets more competitive globally.

The package includes relaxed investment rules for individual foreign investors, a broader investment framework for Foreign Portfolio Investors (FPIs) in government securities, and tax exemptions on gains earned from sovereign bonds.

Advertisement

Foreign investors get bigger equity access

One of the key changes allows individual Persons Resident Outside India (PROIs) to invest in shares of listed Indian companies through the Portfolio Investment Scheme, a route that was earlier restricted to Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs).

To implement the proposal announced in the Union Budget 2026-27, the Department of Economic Affairs is notifying amendments under the Foreign Exchange Management framework.

Under the revised norms:

• Individual PROIs can now participate through the Portfolio Investment Scheme.
• The investment cap for a single foreign investor has been increased from 5 per cent to 10 per cent in a company.
• The aggregate ceiling for all such investors has been raised from 10 per cent to 24 per cent.

Government securities market gets a boost

The government has also announced a major overhaul of the framework governing FPI investments in Government Securities (G-Secs).

To widen participation, the list of securities available under the Fully Accessible Route (FAR) will be expanded to include:

• New government bond issuances with 15-year tenor
• New government bond issuances with 30-year tenor
• New government bond issuances with 40-year tenor
• Sovereign Green Bonds issued in FAR-eligible maturities

 Restrictions eased for FPIs

In another major reform, several investment restrictions applicable to FPIs investing through the General Route have been removed. The government has decided to eliminate:

• Short-term investment limits
• Concentration limits
• Security-wise investment caps

However, the overall investment ceilings will remain unchanged at:

• 6 per cent of the outstanding stock of Central Government Securities
• 2 per cent of outstanding State Government Securities

The existing “general” and “long-term” investment categories will also be merged into a unified limit structure.

Tax exemption for foreign investors

In a further incentive aimed at enhancing India’s attractiveness as a bond investment destination, the government has exempted FPIs from income tax on interest earnings and capital gains arising from investments in Government Securities.

The exemption will apply to income generated on or after April 1, 2026.

The same tax treatment has also been extended to the Bank for International Settlements (BIS) for its investments in Indian government bonds.

According to the government, the tax relief is designed to bring India’s sovereign bond market closer to international standards and encourage participation from large institutional investors.

Focus on long-term capital

Officials said the reforms are intended to draw stable foreign capital from global investors such as pension funds, insurance companies and sovereign wealth funds rather than short-term speculative flows.

The government expects the combined measures to expand the investor base for both equities and government securities, improve market depth and strengthen India’s position as a preferred destination for global capital.