RBI, Govt Unveil Measures to Attract Foreign Inflows in Bonds, Equities

Why It Matters

By lowering cost and regulatory barriers, the measures are expected to boost foreign demand for Indian assets, strengthen the rupee and help close a projected $40‑$50 billion balance‑of‑payments shortfall.

Key Takeaways

• RBI expands Fully Accessible Route to 15‑,30‑,40‑year G‑secs
• FPIs exempt from tax on interest and capital gains from 2026
• PROI equity cap raised to 10% company capital, aggregate to 24%
• Concessional forex swaps and hedging cost coverage for PSUs till Sep 2026
• Expected $30‑50 billion inflows could ease rupee pressure

Pulse Analysis

India’s bond market has long been a magnet for global investors, but recent foreign‑portfolio outflows and a volatile rupee have strained capital flows. The RBI’s decision to broaden the Fully Accessible Route to include new 15‑, 30‑ and 40‑year government securities removes previous sub‑limits, allowing foreign portfolio investors (FPIs) to take larger positions without quantitative caps. Coupled with a tax exemption on both interest and capital‑gain earnings effective April 2026, the reforms could lift FPI returns on Indian sovereign bonds by 15‑20%, making them more competitive against other emerging‑market issuances and encouraging index inclusion.

Equity market reforms complement the bond push by opening the Portfolio Investment Scheme to all Persons Resident Outside India (PROIs) and doubling the individual ownership ceiling from 5% to 10% of a company’s paid‑up capital. The aggregate limit for foreign retail investors rises to 24%, a near‑tripling of the previous ceiling. By leveraging existing NRI/OCI onboarding infrastructure, the changes reduce compliance friction and broaden the pool of stable, long‑term foreign shareholders, potentially deepening market liquidity and supporting price discovery.

From a macro perspective, the coordinated package is designed to plug the estimated $40‑$50 billion balance‑of‑payments gap for FY27 and shore up the rupee. Concessional forex swaps for public‑sector undertakings and full hedging‑cost coverage for FCNR deposits through September 2026 lower financing costs for borrowers and encourage dollar‑denominated inflows. If the projected $30‑$50 billion of foreign capital materialises, India could see a measurable boost to its foreign‑exchange reserves, reduced pressure on the currency, and a more resilient external position, positioning the country as a more attractive destination for global investors.