FPI investment in G-secs under FAR after tax exemption, Pg10

Key Highlights:

• Foreign Portfolio Investors (FPIs) have invested ₹8,794 crore in Indian government securities (G-secs) under the Fully Accessible Route (FAR).
• This surge in investment follows the government's decision to exempt FPIs from income tax on both interest income and capital gains derived from these bonds.
• The tax exemption, implemented through an ordinance, is effective from April 1, 2026.
• The Reserve Bank of India (RBI) also expanded the scope of FAR to include new issuances of 15-year, 30-year, and 40-year G-secs and Sovereign Green Bonds.

Detailed Insights:

• The Fully Accessible Route (FAR) was introduced by the Reserve Bank of India (RBI) in 2020 to allow non-resident investors to invest in specified government securities without any quantitative limits.
• Previously, FPIs were subject to a 12.5% long-term capital gains tax and a 20% withholding tax on interest income from G-secs.
• The recent tax exemptions aim to attract stable, long-term foreign capital and deepen the Indian G-sec market.
• These measures are also intended to improve market liquidity and price discovery, support the Indian Rupee, and enhance the country's appeal as a global investment destination.
• The reforms are expected to facilitate the inclusion of Indian bonds in major global bond indices, potentially leading to significant passive inflows.
• The government also lifted concentration and security-wise limits for FPI investments in G-secs, further streamlining the investment process.

Key Concepts Involved:

• Foreign Portfolio Investors (FPIs): Overseas entities or individuals investing in financial assets like stocks and bonds in a foreign country without gaining direct ownership.
• Government Securities (G-secs): Debt instruments issued by the Central or State Governments to borrow funds, considered risk-free due to government backing.
• Fully Accessible Route (FAR): An RBI framework introduced in 2020 allowing unrestricted foreign investment in select Government of India securities without quantitative caps.