Govt announces measures to attract foreign capital

NEw DelhiThe regime on fri proclaimed a serial of measures to appeal foreign investment to shore up India’s capital account, including changes in rules regarding investments by foreign individuals in Indian stocks, offering more investment options to foreign portfolio investors (FPIs) , and making income on government bonds tax free with retrospective effect from April 1.The move is in line with the government’s commitment to strengthen India’s position as a leading global investment destination and to deepen the capital market, the Union finance ministry said in a statement.Building on the recent initiatives to enhance ease of doing business in capital markets, further reforms have been announced to make foreign investment in equities and G-Secs more accessible, efficient, and globally competitive, it added.The measures are aimed at enhancing the ease of investment for individual Persons Resident Outside India (PROIs) and Foreign Portfolio Investors (FPIs), and to attract stable long-term foreign capital flows, the ministry said.With India’s current account under pressure, on account of both risks to India’s software services exports (from AI), and geo-political developments, a stable capital account will help.To be sure, the liberalisation of investments by individual Persons Resident Outside India is as per the announcement in the Budget 2026-27. It proposed that PROI would be permitted to invest in equity instruments of listed Indian companies through the portfolio investment scheme that was earlier available only to non-resident Indians (NRIs) and overseas citizens of India (OCIs).It also proposed that the investment limit would be increased for an individual PROI under this scheme from 5% to 10% in any company, with an overall investment limit for all individual PROIs to 24%, from the current 10%. The government on Friday notified these changes.“This notification will facilitate a more proactive mobilisation of foreign portfolio capital by leveraging the existing onboarding systems already in place for NRI/OCI investors. Simplified onboarding and reduced compliance requirements would further enhance ease of doing business, while attracting a broader base of relatively stable individual foreign investors. This will also support greater and more stable foreign inflows into Indian equity markets,” the ministry said in its statement.The government also eased the regulatory framework for foreign portfolio investment (FPI) investment in government securities. The government has decided to remove the three restrictions -- short-term investment limit, concentration limit and the security-wise limit for investments by FPIs in government securities with respect to FPI investments under general route, while retaining the overall quantitative investment limit of 6% of the outstanding stock of the central government securities and 2% of the state government securities (SGSs), the ministry’s statement said.“These measures will help in development of a smooth yield curve, and attract stable systematic inflow of long-term, patient foreign capital, including long-term investors such as pension funds, insurance companies, and sovereign wealth funds. This is also expected to boost foreign exchange inflows for the country,” the ministry added.The government also allowed tax exemptions to foreign investors to ensure stable systematic inflow of durable, patient foreign capital and long-term investors such as pension funds, insurance companies, and sovereign wealth funds (SWFs).Recognising the importance of a competitive tax regime in attracting global capital, 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 statement said. “This step will align the taxation on G-Secs with many comparable jurisdictions,” it added.The exemption shall be applicable from April 1, 2026 to any interest or capital gains arising to FPIs on or after the date in respect of investments in G-Secs. Similar income-tax exemption is also provided for Bank for International Settlements (BIS) for any interest or capital gains from its investments in G-Secs.“Taken together, these reforms aim to reduce operational complexities, simplify market access, and provide a more seamless investment experience comparable with leading international financial markets,” the finance ministry said. These measures are expected to expand the investor base for Indian equities and government securities and encourage wider participation from global investors seeking exposure to one of the world’s fastest-growing major economies, it added.