Government Unveils Major Reforms to Boost Foreign Investment

The Ministry of Finance has announced many measures to facilitate investment for individual persons resident outside India (PROIs) and foreign portfolio investors (FPIs) and attract stable long-term foreign capital flows.

In continuation of the recent capital market reform, further reforms have been announced to make foreign investment more accessible, efficient and globally competitive in the equities and G-Secs.

Liberalised investment norms for individual Persons Resident Outside India (PROIs) under the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019

The Union Budget 2026-27 has opened up a new avenue for individual Persons Resident Outside India (PROI) to invest in the equity shares of listed companies in India under the Portfolio Investment Scheme (PIS). Previously, this scheme was available only for NRIs and OCIs. The budget has also increased the investment limit for an individual PROI from 5% to 10% in any listed company and the overall investment limit for all individual PROIs from 10% to 24%.

The Department of Economic Affairs (DEA) has notified the Foreign Exchange Management (Non-Debt Instruments) (Third Amendment) Rules, 2026, to implement these reforms.

This notification will help mobilise foreign portfolio capital in a more proactive manner by widening the existing onboarding mechanisms available to NRI and OCI investors. The move is expected to widen the pool of long-term foreign investors and aid more stable capital inflows into India’s equity markets with easier compliance and streamlined procedures.

Reviewing the FPI Investment Framework for Government Securities

To boost Foreign Portfolio Investor (FPI) participation in Government Securities (G-Secs), the Government has expanded the list of securities eligible under the Fully Accessible Route (FAR) and now also includes new issuances of 15-year, 30-year and 40-year Government securities, along with Sovereign Green Bonds (SGrBs) issued in FAR-eligible tenors.

Additionally, under the General Route, the government has decided to remove three restrictions for investments by foreign portfolio investors (FPIs), including the short-term investment limit, concentration limit, and security-wise investment cap. However, the overall investment limits remain unchanged at 6% of outstanding Central Government securities and 2% of State Government Securities (SGSs). The existing ‘general’ and ‘long-term’ investment categories will also be merged into a single investment limit for each segment.

These reforms are expected to support the development of a smoother yield curve and encourage steady inflows of long-term foreign capital. The measures are likely to attract institutional investors such as pension funds, insurance companies, and sovereign wealth funds, while also strengthening foreign exchange inflows into the country.

Government Exempts Interest and Capital Gains on G-Secs from Tax

The government has decided to rationalise the tax treatment applicable to investments by FPIs in government securities by exempting such investments from income tax on any interest or capital gain. The move aligns India’s tax framework with global standards and aims to attract greater foreign capital into the debt market.

All interest income and capital gains received by FPIs from investments in G-Secs on or after April 1, 2026, will be eligible for the tax exemption.

Additionally, the Bank for International Settlements (BIS) is now exempt from income tax on interest income and capital gains from government securities (G-Secs).

It is anticipated that these actions will draw steady, long-term foreign investment from institutional investors including sovereign wealth funds, insurance corporations, and pension funds. The changes seek to establish an investment environment comparable to top global financial markets by streamlining rules, facilitating market access, and lowering operational barriers.

The overall goal of the programs is to increase the number of foreign investors looking for opportunities in one of the fastest-growing major economies in the world while also expanding the investor base for Indian stocks and government securities.