Key Details
The Ministry of Finance has notified a package of capital-market reforms aimed at attracting long-term foreign investment, simplifying market access, and strengthening India’s sovereign debt market.
Reform Area | What Changed | Why It Matters |
|---|---|---|
Foreign Equity Investment | Individual foreign residents (PROIs) can now invest through the Portfolio Investment Scheme | Opens listed Indian companies to a wider pool of global investors |
Individual Equity Cap | Increased from 5% to 10% | Allows larger investments by individual foreign investors |
Aggregate Equity Cap | Increased from 10% to 24% | Expands overall foreign retail participation in listed firms |
G-Sec Taxation | Interest and capital gains earned by FPIs (Foreign Portfolio Investment) made fully tax-exempt from April 1, 2026 | Improves the attractiveness of Indian government bonds |
FAR Expansion | New 15-year, 30-year and 40-year securities added; Sovereign Green Bonds included | Broadens long-term investment opportunities |
Investment Restrictions | Short-term, concentration and security-wise limits removed under the General Route | Simplifies investment rules and improves market liquidity |
Safeguard Retained | Overall foreign ownership caps remain at 6% for Central Government securities and 2% for State Government Securities | Maintains macro-financial stability |
Summary
Foreign Investors Receive Greater Access to Indian Equity Markets
The Ministry of Finance has notified the Foreign Exchange Management (Non-Debt Instruments) (Third Amendment) Rules, 2026, introducing a significant liberalisation of India’s foreign portfolio investment framework. The reforms allow Persons Resident Outside India (PROIs) to invest in listed Indian equities through the Portfolio Investment Scheme, extending access beyond the traditional NRI and OCI investor base.
The changes also increase the individual investment limit from 5 percent to 10 percent and raise the aggregate ceiling for all PROIs in a listed company from 10 percent to 24 percent, expanding the potential pool of foreign capital available to Indian companies.
Government Securities Market Receives Major Liberalisation
The second component of the reform package focuses on the sovereign debt market. The government has expanded the Fully Accessible Route (FAR) by adding new 15-year, 30-year and 40-year Government Securities, while also making Sovereign Green Bonds eligible under the framework.
For Foreign Portfolio Investors operating through the General Route, the government has removed the short-term investment limit, concentration limit, and security-wise investment limit, significantly simplifying market participation. However, overall foreign ownership ceilings remain unchanged at 6 percent of outstanding Central Government Securities and 2 percent of State Government Securities.
Tax Reforms Target Long-Term Global Capital
A major feature of the package is the introduction of a complete income-tax exemption on interest income and capital gains earned by FPIs from Government Securities, effective from 1 April 2026. The same exemption has also been extended to investments made by the Bank for International Settlements (BIS).
The government expects these measures to improve India’s attractiveness for pension funds, insurance companies, sovereign wealth funds, and other long-term institutional investors, while supporting deeper and more liquid domestic debt markets.
What is the Fully Accessible Route (FAR)?
The Fully Accessible Route (FAR) is an RBI framework that allows specified Government Securities to be purchased by foreign investors without the restrictions that apply to other categories of sovereign debt. The framework was introduced to improve foreign participation in India’s bond market and support inclusion in major global bond indices.
Policy Relevance
The launch of the Third Amendment Rules of 2026 alters India’s capital market policy, transforming the domestic bond and equity segments into highly competitive options for global long-term investors.
Protects the Sovereign Bond Market from Abrupt External Volatility Crises: Removing the short-term, concentration, and security-wise limits for general-route FPIs encourages international institutions to invest steadily in India's long-term debt, lowering borrowing costs for the government.
Expands the Availability of Non-Debt Capital for Listed Corporate Entities: Allowing individual PROIs to invest up to 10 percent via the Portfolio Investment Scheme opens up a new group of stable, individual global investors, reducing the domestic market's exposure to sudden capital flights by large institutional funds.
Matches Global Tax Standards to Attract Large-Scale Institutional Portfolios: Exempting FPI G-Sec earnings from interest and capital gains taxes as of April 1, 2026, removes a major cost disadvantage, placing Indian sovereign bonds on equal footing with other major emerging-market debt options.
Secures Stable Global Capital to Fund Large-Scale Green Infrastructure: Including Sovereign Green Bonds within the FAR framework enables international climate funds and green investors to buy long-term environmental debt easily, supporting India's transition to a low-carbon economy.
Boosts National Foreign Exchange Reserves and Stabilizes the Rupee: Merging the 'general' and 'long-term' FPI sub-categories into a single limit simplifies market entry, driving systematic foreign exchange inflows that help defend the INR from global financial shocks.
Follow the Full News Here: Strategic reforms to deepen the G-Sec market and facilitate greater Foreign Portfolio Investment