In June 2026 India recorded a historic inflow of ₹55,518 crore into its bond market from overseas investors. The surge followed the government’s decision to remove the Long-Term Capital Gains (LTCG) tax on foreign bond holdings and to broaden the Fully Accessible Route (FAR). While the numbers are encouraging, experts warn that the underlying macro‑economic environment must stay favourable for the trend to continue.
Key Developments
- The Government of India waived LTCG tax on foreign bond investments in early June.
- The Reserve Bank of India (RBI) and the Centre expanded the FAR to include 15‑, 30‑ and 40‑year government securities and Sovereign Green Bonds.
- Foreign investors showed renewed confidence, citing easing geopolitical tensions in the Strait of Hormuz and expectations of India’s inclusion in the Bloomberg Global Aggregate Bond Index.
Important Facts
Under the general limit, Foreign Portfolio Investor (FPI) investment in debt securities reached ₹55,518 crore. Within the FAR, inflows hit a record ₹21,652 crore, the highest since its launch in September 2024. These inflows more than offset an equity outflow of ₹49,340 crore.
Exam Relevance
Understanding this episode helps aspirants link fiscal policy, capital market reforms, and macro‑economic stability—core topics in GS3: Economy. The removal of LTCG tax illustrates how tax incentives can influence foreign capital flows, while the expansion of FAR showcases regulatory liberalisation. The episode also touches on external sector concerns—foreign exchange earnings, balance of payments, and the role of sovereign green financing.
Way Forward
While the tax waiver removed a cost barrier, sustained inflows will depend on a stable macro‑economic backdrop: manageable inflation, a resilient rupee, and credible fiscal discipline. Policymakers must also address structural issues such as market depth, credit rating upgrades, and transparent issuance of long‑tenor bonds. If India secures a spot in the Bloomberg Global Aggregate Bond Index, passive fund flows could provide a steady source of capital, reducing reliance on one‑off tax incentives.