In June 2026, India recorded a historic inflow of ₹55,518 crore into its bond market from foreign investors. The surge followed the government’s decision to waive LTCG tax on foreign bond holdings and the expansion of the FAR to longer‑tenor securities and Sovereign Green Bonds.
Key Developments
- The GoI removed the LTCG tax on foreign bond investments in early June.
- RBI and the centre widened the FAR to include 15‑year, 30‑year, and 40‑year government securities.
- Investments under the FAR reached ₹21,652 crore, the highest since its launch in September 2024.
- Overall foreign portfolio inflow offset an equity outflow of ₹49,340 crore.
Important Facts
The inflow was broad‑based, covering both corporate bonds and government securities. Experts say the tax waiver acted as a catalyst, but deeper factors such as policy consistency, macro‑economic stability, and global index inclusion (e.g., potential entry into the Bloomberg Global Aggregate Bond Index) also boosted confidence.
Analysts like Prof. Lekha Chakraborty (NIPFP) argue that while taxation mattered, the long‑term liberalisation through the FAR is more decisive. Former Finance Secretary S.C. Garg cautioned that the move may be a “desperate attempt” to attract foreign exchange.
Exam Relevance
Understanding this episode helps aspirants link fiscal policy, capital market reforms, and external sector dynamics—core topics in GS Paper III (Economy). The case illustrates how tax incentives, regulatory channels like the FAR, and global index considerations shape foreign portfolio flows, which in turn affect the balance of payments and exchange‑rate stability.
Way Forward
- Maintain policy consistency to reassure long‑term institutional investors such as sovereign wealth funds and pension funds.
- Address macro‑economic fundamentals: control inflation, ensure fiscal prudence, and stabilise the rupee.
- Monitor progress on inclusion in global bond indices, which can provide a sustainable boost to foreign inflows.
- Evaluate the impact of the tax waiver over a longer horizon before deciding on further fiscal incentives.