India has announced a major package of capital market reforms aimed at attracting more long-term foreign investment, deepening the government securities market and making it easier for overseas individuals and global funds to invest in Indian equities and debt.
The Indian Ministry of Finance said the measures are designed to strengthen India’s position as a leading global investment destination and support more stable foreign capital inflows into one of the world’s fastest-growing major economies.
The reforms include expanded access for individual Persons Resident Outside India to invest in listed Indian companies, changes to Foreign Portfolio Investor rules for government securities, and tax exemptions on interest and capital gains from investments in government bonds.
Under the changes, individual Persons Resident Outside India will be allowed to invest in equity instruments of listed Indian companies through the Portfolio Investment Scheme, which was previously available only to Non-Resident Indians and Overseas Citizens of India.
The investment limit for an individual overseas resident under the scheme will rise from 5 per cent to 10 per cent in any company, while the overall limit for all individual overseas residents will increase from 10 per cent to 24 per cent.
The Department of Economic Affairs is notifying the Foreign Exchange Management (Non-Debt Instruments) (Third Amendment) Rules, 2026, to implement the change.
The government said the move would use existing onboarding systems already in place for NRI and OCI investors, reducing compliance burdens and making investment easier for a wider pool of foreign individual investors.
In the government securities market, India will expand the list of specified securities under the Fully Accessible Route to include new issuances of 15-year, 30-year and 40-year government securities. Sovereign Green Bonds in tenors already eligible under the route will also be included.
The government has also decided to remove three restrictions under the general route for Foreign Portfolio Investor investments in government securities: the short-term investment limit, concentration limit and security-wise limit.
However, the overall quantitative investment cap will remain unchanged at 6 per cent of the outstanding stock of Central Government securities and 2 per cent of State Government securities.
The existing sub-categories of investment limits, including “general” and “long-term”, will be merged into a single limit for investment in government securities and state government securities.
The government said the measures are expected to support the development of a smoother yield curve and attract long-term capital from investors such as pension funds, insurance companies and sovereign wealth funds.
In a significant tax change, India will exempt Foreign Portfolio Investors from income tax on any interest or capital gains arising from investments in government securities. The exemption will apply from 1 April 2026.
A similar exemption will also apply to the Bank for International Settlements for interest and capital gains from its investments in Indian government securities.
The tax exemption was introduced through an executive order while Parliament was not in session, with the measure aimed at drawing more stable foreign capital at a time when the rupee had faced pressure from elevated oil prices and equity outflows.
Analysts said the exemption could improve post-tax returns for overseas investors and help broaden participation in Indian government bonds, although the immediate market reaction was limited.
The reform package comes as India seeks to position itself as a more globally competitive investment destination and deepen its domestic capital markets.
By simplifying access, reducing tax friction and widening the eligible investor base, the government is seeking to attract patient foreign capital into both equity and sovereign debt markets.
The measures are also expected to support foreign exchange inflows and strengthen India’s appeal to global investors looking for exposure to its growth story.
The reforms signal New Delhi’s intention to make its financial markets more open, efficient and comparable with leading international markets, while maintaining overall investment limits in sensitive areas of the sovereign debt market.
For global investors, the changes could make Indian government securities and listed equities more accessible. For India, the move is part of a broader push to deepen markets, support the rupee, improve capital inflows and reinforce its position as a major emerging market investment destination.
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