Foreign Portfolio Investors Pour ₹35,000 Crore Into Indian Bonds in June After Tax Exemption

Why It Matters

The tax break and RBI’s liberalisation are designed to attract sustained foreign capital, deepening India’s sovereign debt market and supporting the rupee amid external pressures.

Key Takeaways

• FPIs invested $4.2 billion in Indian bonds in June.
• FAR holdings rose to $43 billion, up from $39 billion.
• Tax exemption applies retroactively from April 1 2025.
• RBI expanded FAR to include 15‑, 30‑, 40‑year securities.

Pulse Analysis

The Indian government’s decision to exempt foreign portfolio investors from tax on interest and capital gains marks a strategic pivot to lure overseas capital into its sovereign debt market. By eliminating a 20 % withholding tax and a 12.5 % long‑term gains levy, the policy makes Indian bonds more competitive against global benchmarks. The timing is crucial: after a $213 million outflow in March, FPIs returned with $660 million in May and a surge to $4.2 billion in June, signaling renewed confidence.

Concurrently, the Reserve Bank of India used its June monetary‑policy announcement to broaden the Fully Accessible Route (FAR). New issuances of 15‑, 30‑, and 40‑year government securities are now eligible, and previous limits on short‑term holdings, concentration, and single‑issuer exposure have been removed. These regulatory tweaks lower barriers for non‑resident investors, increase market liquidity, and help build a more diversified investor base, which is essential for deepening India’s bond market and lowering borrowing costs.

The combined fiscal and monetary measures aim to reinforce the rupee and reduce reliance on short‑term capital flows. By securing a steadier stream of foreign funding, India can finance its fiscal deficit at lower yields and support long‑term infrastructure projects. Market observers expect the reforms to set a precedent for further liberalisation, positioning India as a premier destination for sovereign debt investment in the emerging‑market arena.