India has abolished taxes on foreign investors’ earnings from certain government bonds and relaxed investment restrictions in a bid to attract overseas capital, strengthen foreign exchange inflows, and ease pressure on the rupee.
The measures, announced on Friday by the Indian government and the Reserve Bank of India (RBI), come as the country grapples with rising energy import costs, foreign portfolio outflows, and a widening current account deficit.
Under the new policy, foreign institutional investors will no longer pay taxes on interest income or capital gains earned from specified government securities. The exemption, according to an official gazette, takes retrospective effect from April 1, 2026.
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Indian authorities said the move is designed to encourage long-term foreign participation in the country’s debt market.
“This will ensure a stable systematic inflow of durable, patient foreign capital and long-term investors such as pension funds, insurance companies, and sovereign wealth funds,” the government said in a statement.
In a parallel move, the RBI expanded the list of long-dated government bonds that foreign investors can purchase without investment limits under its Fully Accessible Route (FAR) programme.
Speaking on Friday, RBI Governor Sanjay Malhotra said broadening the range of eligible securities would improve the attractiveness of India’s sovereign debt market and help draw additional foreign capital.
The measures are aimed at cushioning the Indian economy from mounting external pressures. Higher crude oil prices, driven by tensions involving Iran and disruptions to shipping through the Strait of Hormuz, have increased India’s import bill and weighed on the country’s external accounts.
At the same time, foreign investors have withdrawn more than $26 billion from Indian equities this year, pushing cumulative net investments close to their lowest level in a decade. The benchmark Nifty 50 Index has declined about 10 percent since the start of the year.
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The resulting pressure on the rupee has prompted Prime Minister Narendra Modi to urge citizens to reduce fuel consumption, postpone nonessential overseas travel, and limit gold purchases to conserve foreign exchange reserves.
Analysts say the latest reforms reflect India’s determination to maintain access to foreign capital at a time when global investors are becoming more selective amid heightened geopolitical and economic uncertainty.
Beyond the bond market measures, the government also announced plans to allow individuals resident outside India to invest directly in shares of listed Indian companies through the portfolio investment scheme, potentially broadening the country’s foreign investor base.
The government hopes stronger capital inflows will help finance its widening current account deficit, support the balance of payments, and reduce volatility in the foreign exchange market.
The policy shift highlights how emerging economies are increasingly turning to tax incentives and market liberalisation measures to compete for global capital as financing conditions tighten worldwide.
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