Mains Answer Writing - 10 Jun, 2026

GS3

Economy

15 marks

India has recently undertaken major reforms to liberalise foreign participation in equity and government securities markets. Discuss the significance of these reforms in attracting long-term foreign capital. Also examine the potential risks associated with greater foreign portfolio investment in the Indian economy.

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Tips for your answer

Start with the reforms
Briefly mention equity liberalisation for foreign individuals, G-Sec market reforms (FAR expansion), and tax exemption on sovereign debt investments.
Explain the benefits
Focus on higher foreign capital inflows, deeper capital markets, improved liquidity, and lower government borrowing costs.
Conclude with risks and safeguards
Mention capital flight, exchange rate volatility, and external shocks, while noting that investment caps and regulatory oversight act as safeguards.

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