Ministry of Finance Announces Major Reforms to Deepen G-Sec Market and Facilitate FPI Investment
The Ministry of Finance has implemented significant reforms to strengthen India's position as a global investment destination and deepen capital markets. These measures aim to enhance ease of investment for individual Persons Resident Outside India (PROIs) and Foreign Portfolio Investors (FPIs), while attracting stable long-term foreign capital flows.
Equity Investment Liberalization for Individual PROIs
In implementation of the Union Budget FY2026-27 announcement, individual Persons Resident Outside India will now be permitted to invest in equity instruments of listed Indian companies through the Portfolio Investment Scheme, which was previously available only to NRIs/OCIs. The investment limit for an individual PROI has been increased from 5% to 10% in any company, with the overall aggregate investment limit for all individual PROIs raised from 10% to 24%. The Department of Economic Affairs is notifying the Foreign Exchange Management (Non-Debt Instruments) (Third Amendment) Rules, 2026 to implement these changes, which will leverage existing NRI/OCI onboarding systems and reduce compliance requirements.
G-Sec Market Reforms for FPIs
To enhance FPI participation in Government securities, the government has expanded the list of specified securities under the Fully Accessible Route (FAR) to include new issuances in Government securities with tenors of 15, 30, and 40 years, as well as Sovereign Green Bonds (SGrBs) in the tenors of FAR-eligible securities. For FPI investments under the General Route, three key restrictions have been removed: the short-term investment limit, concentration limit, and security-wise limit. The overall quantitative investment limits remain at 6% of outstanding stock of Central Government securities and 2% of State Government securities (SGSs). The sub-categories of investment limits ('general' and 'long-term') will be merged into single limits for Government securities and SGSs, respectively.
Tax Exemption for G-Sec Investments
The government has rationalized tax treatment for FPI investments in Government Securities by exempting such investments from income tax on any interest or capital gains. This exemption takes effect from April 1, 2026, applying to any interest or capital gains arising to FPIs on or after this date. A similar income-tax exemption has been provided for the Bank for International Settlements (BIS) for any interest or capital gains from its investments in G-Secs.
These comprehensive reforms aim to reduce operational complexities, simplify market access, and provide a more seamless investment experience comparable to leading international financial markets. The measures are expected to develop a smooth yield curve, attract stable systematic inflow of long-term foreign capital including from pension funds, insurance companies, and sovereign wealth funds, and boost foreign exchange inflows for the country.