Government Announces Landmark Reforms to Boost Foreign Investment in Indian Equities and Government Securities
New measures aim to deepen capital markets, attract long-term global investors, and strengthen India’s position as a premier investment destination
By Suman Munshi
IBG NEWS
New Delhi, June 5: In a significant policy initiative aimed at strengthening India’s capital markets and enhancing the country’s attractiveness as a global investment destination, the Government of India has unveiled a series of reforms to facilitate greater participation by Foreign Portfolio Investors (FPIs) and overseas individual investors in Indian equities and Government Securities (G-Secs).
Announced by the Ministry of Finance, the reforms are expected to improve ease of investment, attract stable long-term foreign capital, and further integrate India’s financial markets with the global investment ecosystem.
Expanded Access for Overseas Individual Investors
A key component of the reform package is the liberalisation of investment norms for individual Persons Resident Outside India (PROIs). As announced by Union Finance Minister Nirmala Sitharaman in the Union Budget 2026-27, overseas individuals will now be permitted to invest in equity instruments of listed Indian companies through the Portfolio Investment Scheme (PIS), a facility that was previously available only to Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs).
The government has also enhanced the investment ceiling for individual overseas investors from 5 per cent to 10 per cent in any listed company. Simultaneously, the aggregate investment limit for all such investors in a company has been increased from 10 per cent to 24 per cent.
To operationalise the announcement, the Department of Economic Affairs (DEA) is notifying the Foreign Exchange Management (Non-Debt Instruments) (Third Amendment) Rules, 2026.
According to the Finance Ministry, the reforms will leverage existing investor onboarding mechanisms, simplify compliance requirements, and encourage broader participation from international investors seeking long-term exposure to India’s growth story.
Major Changes in Government Securities Framework
The government has also undertaken significant reforms aimed at expanding foreign participation in India’s Government Securities market.
Under the revised framework, the list of securities eligible under the Fully Accessible Route (FAR) has been expanded to include newly issued Government Securities with maturities of 15, 30, and 40 years. Sovereign Green Bonds (SGrBs) issued in FAR-eligible tenors will also be included under the route.
In another major step, the government has removed three key restrictions applicable to FPIs investing through the General Route:
- Short-term investment limits
- Concentration limits
- Security-wise investment limits
The overall investment cap of 6 per cent of outstanding Central Government Securities and 2 per cent of outstanding State Government Securities will, however, remain unchanged.
Additionally, the existing “general” and “long-term” categories of investment limits will be merged into a unified framework for investments in Government Securities and State Government Securities.
The government expects these measures to contribute to a smoother yield curve, enhance market liquidity, and attract long-term institutional investors such as pension funds, insurance companies, and sovereign wealth funds.
Tax Exemption to Enhance Global Competitiveness
In a move aimed at improving the competitiveness of Indian sovereign debt instruments, the government has announced a complete exemption from income tax on interest income and capital gains earned by Foreign Portfolio Investors from investments in Government Securities.
The exemption will apply retrospectively from April 1, 2026, covering all eligible interest income and capital gains arising on or after that date.
The same tax benefit has also been extended to the Bank for International Settlements (BIS) for its investments in Indian Government Securities.
Market observers believe the tax relief will significantly improve the attractiveness of Indian debt instruments among global investors and align India’s tax treatment with practices followed in several major international financial markets.
Strengthening India’s Investment Ecosystem
The Ministry of Finance stated that the reforms are part of a broader effort to reduce operational barriers, simplify market access, and create an investment environment comparable to leading global financial centres.
By opening new avenues for foreign investment in equities, easing participation in Government Securities, and introducing a favourable tax regime, the government aims to expand the investor base and attract stable, long-term capital inflows into the Indian economy.
Financial experts believe the reforms could strengthen foreign exchange reserves, improve market depth and liquidity, and reinforce investor confidence in India’s economic growth trajectory.
As India continues to position itself as one of the world’s fastest-growing major economies, these measures are expected to play a crucial role in attracting durable global capital and supporting the country’s long-term development objectives.
(Source: Ministry of Finance, Government of India)
