Government Unveils Major Reforms to Boost Foreign Investment in Indian Equities and Government Securities

In a significant move aimed at strengthening India’s position as a global investment destination, the Government of India has announced a series of reforms designed to deepen the Government Securities (G-Sec) market and encourage greater participation by Foreign Portfolio Investors (FPIs) in both equities and sovereign debt. The measures are expected to simplify investment procedures, attract long-term foreign capital, and enhance the competitiveness of India’s financial markets.

The reforms build upon the government’s ongoing efforts to improve ease of doing business in the capital markets and create a more investor-friendly environment for global investors seeking exposure to one of the world’s fastest-growing major economies.

A key highlight of the reform package is the liberalisation of investment rules for individual Persons Resident Outside India (PROIs). Announced by the Union Finance Minister in the Union Budget 2026-27, the new framework allows individual PROIs to invest in equity instruments of listed Indian companies through the Portfolio Investment Scheme (PIS), a facility that was previously available only to Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs).

To implement this decision, the Department of Economic Affairs (DEA) is notifying amendments to the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019. Under the revised norms, the investment limit for an individual PROI in a listed company has been increased from 5 percent to 10 percent. Additionally, the aggregate investment limit for all individual PROIs in a company has been raised from the existing 10 percent to 24 percent.

The government believes these changes will encourage broader participation by foreign individual investors by leveraging existing onboarding systems already used by NRIs and OCIs. Simplified compliance requirements and easier market access are expected to attract a larger pool of relatively stable foreign investors, resulting in stronger and more consistent capital inflows into Indian equity markets.

In another major reform, the government has reviewed the regulatory framework governing FPI investments in Government Securities. To enhance foreign participation in India’s debt market, authorities have expanded the list of securities eligible under the Fully Accessible Route (FAR). The expanded list will now include newly issued government securities with maturities of 15, 30 and 40 years, as well as Sovereign Green Bonds issued in FAR-eligible tenors.

The government has also removed three important restrictions on FPI investments under the General Route. These include the short-term investment limit, concentration limit, and security-wise investment cap. However, the overall quantitative ceiling for foreign investment will continue to remain at 6 percent of the outstanding stock of Central Government securities and 2 percent of State Government Securities (SGSs).

Furthermore, the existing sub-categories of “general” and “long-term” investment limits for government securities and SGSs will be merged into a single investment limit. Policymakers expect these changes to improve market liquidity, facilitate the development of a smoother yield curve, and attract long-term institutional investors such as pension funds, insurance companies, and sovereign wealth funds.

A major tax incentive has also been introduced to make Indian government bonds more attractive to overseas investors. The government has decided to exempt FPIs from income tax on interest earnings and capital gains arising from investments in Government Securities. The tax exemption will be effective from April 1, 2026, and will apply to all interest income and capital gains earned by FPIs on G-Sec investments from that date onward.

The same tax benefits will also be extended to the Bank for International Settlements (BIS) for investments made in Government Securities. According to the government, aligning India’s tax treatment of sovereign debt with international standards will significantly improve the country’s attractiveness among global fixed-income investors.

Taken together, these reforms are expected to reduce operational complexities, simplify market access, and provide a seamless investment experience comparable to leading global financial markets. By encouraging greater participation from foreign investors in both equity and debt segments, the government aims to attract durable long-term capital, strengthen financial market depth, support foreign exchange inflows, and reinforce India’s status as a preferred global investment destination.