New measures aim to deepen capital markets, attract long-term foreign capital, and strengthen India’s position as a global investment destination
The Government of India has announced a series of significant reforms designed to make investment in Indian equities and Government Securities (G-Secs) more accessible and attractive to foreign investors. The measures, introduced by the Ministry of Finance, seek to deepen the country’s capital markets, improve ease of investment, and encourage stable long-term foreign capital inflows.
The reforms focus on expanding investment opportunities for Persons Resident Outside India (PROIs) and Foreign Portfolio Investors (FPIs), while aligning India’s financial markets with global standards.
Greater Access for Overseas Individual Investors
As announced in the Union Budget 2026-27, individual Persons Resident Outside India (PROIs) will now be allowed to invest in equity instruments of listed Indian companies through the Portfolio Investment Scheme (PIS), a facility previously available only to Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs).
The government has also increased the individual investment limit under the scheme from 5 percent to 10 percent in a company. Additionally, the aggregate investment ceiling for all individual PROIs has been raised from 10 percent to 24 percent.
To implement these changes, the Department of Economic Affairs (DEA) will notify the Foreign Exchange Management (Non-Debt Instruments) (Third Amendment) Rules, 2026.
The move is expected to simplify onboarding procedures, reduce compliance requirements, and attract a broader base of relatively stable foreign investors, thereby supporting stronger and more consistent capital inflows into Indian equity markets.
Expanded Opportunities for FPIs in Government Securities
To enhance foreign participation in the Government Securities market, the government has expanded the list of securities eligible under the Fully Accessible Route (FAR). The revised framework will include new issuances of Government Securities with maturities of 15, 30, and 40 years, along with Sovereign Green Bonds issued in FAR-eligible tenors.
The government has also eased investment norms for FPIs under the General Route by removing three key restrictions:
Short-term investment limits
Concentration limits
Security-wise investment limits
However, the overall investment caps remain unchanged at 6 percent of the outstanding stock of Central Government Securities and 2 percent of State Government Securities.
Additionally, the separate categories of “general” and “long-term” investment limits will be merged into a single investment limit for both Central and State Government Securities.
These changes are expected to support the development of a smoother yield curve and attract long-term institutional investors such as pension funds, insurance companies, and sovereign wealth funds.
Tax Exemption on Interest and Capital Gains
In a major incentive for foreign investors, the government has decided to exempt FPIs from income tax on interest income and capital gains arising from investments in Government Securities.
The tax exemption will apply to all eligible interest and capital gains generated on or after April 1, 2026.
A similar exemption has also been extended to the Bank for International Settlements (BIS) on its investments in Government Securities.
The government believes that a competitive tax regime will help attract durable, long-term foreign capital and enhance India’s appeal among global investors.
Strengthening India’s Investment Ecosystem
According to the Ministry of Finance, the combined impact of these reforms will reduce operational complexities, simplify market access, and provide a more seamless investment experience comparable to leading international financial markets.
The measures are expected to broaden the investor base for both Indian equities and Government Securities, while reinforcing India’s reputation as one of the world’s fastest-growing major economies and an increasingly attractive destination for global investment.
