Reforms to Expand Foreign Participation in G-Secs

The Government announced a package of reforms to expand Foreign Portfolio Investor (FPI) participation in Government Securities (G-Secs), with the goal of de...

What Happened

The Government announced a package of reforms to expand Foreign Portfolio Investor (FPI) participation in Government Securities (G-Secs), with the goal of deepening India's bond market and attracting long-term foreign capital.
The Fully Accessible Route (FAR) has been expanded to include new issuances of 15-year, 30-year, and 40-year Government securities and Sovereign Green Bonds — allowing unlimited FPI investment in these tenors without being subject to the standard 6% cap.
Interest income and capital gains earned by FPIs from G-Sec investments have been exempted from income tax with effect from April 1, 2026; a similar exemption has been extended to the Bank for International Settlements (BIS).
Restrictions on short-term investment, concentration limits, and security-wise limits for FPI investments in G-Secs have been removed, while the overall quantitative cap of 6% of outstanding Central Government Securities and 2% of State Government Securities is retained.
For equity markets, individual Persons Resident Outside India (PROIs) will be allowed to invest in listed Indian companies through the Portfolio Investment Scheme, with the individual cap raised from 5% to 10% and the aggregate cap raised from 10% to 24%.

Static Topic Bridges

Fully Accessible Route (FAR) for FPI Investment in G-Secs

The Fully Accessible Route (FAR) was introduced by the Reserve Bank of India in March 2020 to allow non-resident investors (including FPIs) to invest in specified Government Securities without being subject to any quantitative investment limits. It was a key step toward India's inclusion in global bond indices.

From FY 2020–21, all new issuances of G-Secs of 5-year, 10-year, and 30-year tenors were made eligible under FAR as "specified securities."
Under FAR, unlike the general FPI route, there is no cap on the quantum of investment in the designated securities — making these securities accessible at scale to global investors such as pension funds, insurance companies, and sovereign wealth funds.
India was included in JPMorgan's Government Bond Index-Emerging Markets (GBI-EM) from June 2024, partly made possible by the FAR framework and associated reforms.
The June 2026 expansion of FAR to 15-year, 40-year, and Sovereign Green Bond issuances deepens the accessibility of India's yield curve to foreign investors.
Overall FPI limit in Central G-Secs under the general route remains at 6% of outstanding securities; the State Government Securities cap remains at 2%.

Connection to this news: The FAR expansion announced in 2026 is the next phase of bond market liberalisation — extending foreign access deeper into the long-duration part of India's sovereign yield curve, precisely the segment favoured by long-horizon institutional investors.

Voluntary Retention Route (VRR) for FPI Debt Investments

The Voluntary Retention Route (VRR) was introduced by the Reserve Bank of India on 1 March 2019 to encourage FPIs to make long-term, committed investments in India's debt markets. It trades regulatory flexibility for a minimum retention commitment.

FPIs investing via VRR voluntarily commit to retain a minimum percentage of their portfolio in India for a minimum of three years (or as specified by RBI for each allotment).
In exchange, VRR investments are exempt from macro-prudential norms including minimum residual maturity requirements, concentration limits, and single/group investor-wise limits.
FPIs must invest 25% of their committed portfolio within one month of allotment and the remainder within three months.
VRR-Govt covers Central Government dated securities, treasury bills, and State Development Loans (SDLs).
The scheme attracts institutional investors with longer investment horizons, reducing volatility in India's bond market.

Connection to this news: The removal of short-term and concentration restrictions in the general FPI route announced in 2026 effectively brings the general route closer to the VRR framework's flexibility, signalling a broad structural opening of India's debt markets.

Foreign Portfolio Investors (FPIs) and India's Capital Market Regulation

FPIs are entities registered with the Securities and Exchange Board of India (SEBI) that invest in Indian securities markets — equities, debt, and hybrid instruments. Their regulatory framework is governed by the SEBI (Foreign Portfolio Investors) Regulations, 2019.

FPIs are categorised into three groups based on risk profile: Category I (low risk — sovereign wealth funds, central banks, multilateral institutions), Category II (moderate risk — asset managers, banks, regulated funds), and Category III (higher risk — all others).
The overall FPI investment cap in G-Secs is set jointly by the Ministry of Finance and RBI, and reviewed periodically.
As of FY27, the FPI investment limit in Central Government Securities is maintained at 6% of outstanding stocks (unchanged from previous year per RBI's April 2026 review).
The tax exemption on interest and capital gains from G-Secs (effective April 1, 2026) directly addresses the longstanding concern that India's withholding tax regime made its bonds less attractive versus peers like Indonesia or Brazil in global bond indices.
The BIS exemption is significant: BIS acts as the "central bank of central banks" and its participation signals institutional legitimacy for India's bond market.

Connection to this news: The equity route reform — raising the individual PROI cap from 5% to 10% and aggregate from 10% to 24% — runs parallel to the G-Sec reforms and collectively signals India's intent to align its capital market openness with emerging market peers.

Key Facts & Data

FAR introduced: March 2020, by RBI; initial eligible tenors: 5-year, 10-year, 30-year G-Secs.
2026 FAR expansion: adds 15-year, 40-year G-Secs and Sovereign Green Bonds.
FPI overall limit in Central G-Secs: 6% of outstanding securities (unchanged).
FPI limit in State Government Securities: 2% (unchanged).
Tax exemption on FPI G-Sec interest/capital gains: effective April 1, 2026.
VRR introduced: March 1, 2019; minimum retention period: 3 years.
VRR investment commitment: 25% within 1 month; balance within 3 months of allotment.
Individual PROI investment cap in listed Indian companies raised: 5% → 10%.
Aggregate PROI cap raised: 10% → 24%.
India's inclusion in JPMorgan GBI-EM: June 2024 (enabled by FAR and related reforms).
BIS: Bank for International Settlements — established 1930; headquartered in Basel, Switzerland; acts as banker to central banks.