{"id":1202,"date":"2026-06-06T05:01:33","date_gmt":"2026-06-06T05:01:33","guid":{"rendered":"https:\/\/materials.simplycurrentaffairs.com\/?p=1202"},"modified":"2026-06-10T05:01:41","modified_gmt":"2026-06-10T05:01:41","slug":"reforms-to-expand-foreign-participation-in-g-secs","status":"publish","type":"post","link":"https:\/\/materials.simplycurrentaffairs.com\/index.php\/2026\/06\/06\/reforms-to-expand-foreign-participation-in-g-secs\/","title":{"rendered":"Reforms to Expand Foreign Participation in G-Secs"},"content":{"rendered":"\n

Reforms to Expand Foreign Participation in G-Secs<\/strong><\/strong><\/strong><\/strong><\/strong><\/strong><\/strong><\/strong><\/strong><\/strong><\/strong><\/strong><\/strong><\/strong><\/strong><\/strong><\/strong><\/strong><\/strong><\/strong><\/strong><\/mark><\/strong><\/h2>\n\n\n\n

What\u2019s in the news?<\/strong><\/strong><\/strong><\/strong><\/strong><\/strong><\/mark><\/strong><\/h3>\n\n\n\n
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  • With an aim to attract foreign capital, the government has promulgated the Income Tax Amendment Ordinance, 2026 <\/strong>to grant a full tax exemption on income earned from government securities by Foreign Institutional Investors (FIIs)<\/strong>.  \n
      \n
    • The relief covers both interest income and capital gains <\/strong>arising from such investments. <\/li>\n\n\n\n
    • The same relief<\/strong> has also been extended to the Bank of International Settlements (BIS). <\/strong>As a result, any interest income or capital gains generated by the BIS from transactions involving government securities will qualify for exemption.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n
      \n

      Foreign Portfolio Investment (FPI):<\/strong><\/strong><\/strong><\/h4>\n\n\n\n
        \n
      • FPI refers to\u00a0investments made by foreign individuals, institutional investors, or funds in financial instruments\u00a0<\/strong>such as stocks, bonds, mutual funds, and government securities.\u00a0\u00a0<\/li>\n\n\n\n
      • FPIs\u00a0do not\u00a0participate\u00a0in the management or decision-making\u00a0<\/strong>of the companies in which they invest and are\u00a0generally considered\u00a0passive investors.<\/strong><\/li>\n<\/ul>\n\n\n\n

        Foreign Institutional Investment (FII):<\/strong><\/strong><\/strong><\/strong><\/h4>\n\n\n\n
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        • FII is a\u00a0category of FPI<\/strong>\u00a0that refers specifically to\u00a0investments made by foreign institutional investors\u00a0<\/strong>such as mutual funds, pension funds, insurance companies, and hedge funds.\u00a0\u00a0<\/li>\n\n\n\n
        • These institutions\u00a0invest pooled funds in financial markets<\/strong>\u00a0and typically play a\u00a0more active role in investment research and decision-making.<\/strong><\/li>\n<\/ul>\n\n\n\n

          Government Securities (G-Secs):<\/strong><\/strong><\/strong><\/strong><\/strong><\/h4>\n\n\n\n
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          • G-Sec is a\u00a0tradable instrument issued by the Central Government or the State Governments<\/strong>. It\u00a0acknowledges the Government\u2019s debt obligation.\u00a0<\/strong>\u00a0<\/li>\n\n\n\n
          • Such securities are\u00a0short term\u00a0<\/strong>(usually called\u00a0treasury bills<\/strong>, with\u00a0original maturities of less than one year<\/strong>) or\u00a0long term\u00a0<\/strong>(usually called\u00a0Government bonds or dated securities with original maturity of one year or more<\/strong>).\u00a0\u00a0<\/li>\n\n\n\n
          • In India, the\u00a0Central Government issues both<\/strong>, treasury bills and bonds or dated securities while the\u00a0State Governments issue only bonds or dated securities<\/mark><\/strong>, which are called the\u00a0State Development Loans (SDLs).\u00a0<\/strong>\u00a0<\/li>\n\n\n\n
          • G-Secs carry\u00a0practically no\u00a0risk of default and, hence, are called\u00a0risk-free gilt-edged instruments.<\/strong>\u00a0<\/li>\n\n\n\n
          • Foreign Portfolio Investors (FPIs) are allowed<\/strong>\u00a0to\u00a0participate\u00a0in the G-Secs market<\/mark>\u00a0in India\u00a0within the quantitative limits<\/strong>\u00a0prescribed from time to time (currently\u00a06%<\/strong>\u00a0of outstanding stocks of securities).<\/li>\n<\/ul>\n\n\n\n

            Bank for International Settlements (BIS):<\/strong><\/strong><\/strong><\/strong><\/strong><\/h4>\n\n\n\n
              \n
            • BIS is an\u00a0international financial institution owned by central banks.\u00a0<\/strong>\u00a0<\/li>\n\n\n\n
            • It serves as a\u00a0forum for monetary and financial cooperation among central banks globally.<\/strong>\u00a0\u00a0<\/li>\n\n\n\n
            • It also acts as a\u00a0banker and asset manager for central banks and international organizations.<\/strong><\/li>\n<\/ul>\n<\/div><\/div>\n\n\n\n
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              • At present, FIIs pay 12.5% tax on long-term capital gains, 30% on short-term capital gains, and around 20% tax on interest income.<\/li>\n<\/ul>\n\n\n\n
                \n

                Classification of Capital Gains:<\/strong><\/strong><\/strong><\/strong><\/h4>\n\n\n\n
                  \n
                • Capital gains\u00a0<\/strong>refer to the\u00a0profits earned from the sale of capital assets<\/strong>, such as real estate, stocks, mutual funds, and other investments.\u00a0Capital gains tax\u00a0<\/strong>is the tax levied on these gains.\u00a0\u00a0<\/li>\n\n\n\n
                • Long-Term Capital Gains (LTCG)<\/strong>\u00a0arise when a Government Security is held beyond the prescribed holding period:\u00a0\n
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                  • Listed G-Secs: More than 12 months.\u00a0<\/li>\n\n\n\n
                  • Unlisted G-Secs: More than 24 months.\u00a0<\/li>\n<\/ul>\n<\/li>\n\n\n\n
                  • Short-Term Capital Gains (STCG)<\/strong>\u00a0arise when a Government Security is held for less than the prescribed holding period:\u00a0\n
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                    • Listed G-Secs: Up to 12 months.\u00a0<\/li>\n\n\n\n
                    • Unlisted G-Secs: Up to 24 months.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/div><\/div>\n\n\n\n
                        \n
                      • The move is aimed at making\u00a0Indian debt markets more attractive to overseas investors<\/strong>.<\/li>\n<\/ul>\n\n\n\n
                        \"\"<\/figure>\n\n\n\n
                          \n
                        • Further, the government also announced that\u00a015, 30, and 40-year tenor bonds\u00a0<\/strong>will be added to investment under\u00a0Fully\u00a0Accessible Route (FAR) framework<\/strong>.<\/li>\n<\/ul>\n\n\n\n
                          \n
                            \n
                          • Foreign investors<\/strong>\u00a0can\u00a0invest in Indian G-Secs<\/strong>\u00a0through routes such as the\u00a0General Route<\/strong>\u00a0and the\u00a0Fully Accessible Route (FAR).\u00a0<\/strong>\u00a0\n
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                            • General Route<\/strong>\u00a0is the\u00a0standard channel<\/strong>\u00a0for foreign investors. It allows them to\u00a0buy and sell<\/strong>\u00a0permitted\u00a0Indian G-secs, but comes with\u00a0certain restrictions<\/strong>, such as caps on how much can be invested in a particular security, how long it must be held, and an overall investment limit.\u00a0\u00a0<\/li>\n\n\n\n
                            • FAR<\/strong>\u00a0is an\u00a0open-access channel\u00a0<\/strong>where foreign investors can\u00a0invest in select G-Secs without restrictions\u00a0<\/strong>that apply under the General Route.\u00a0\u00a0<\/li>\n<\/ul>\n<\/li>\n\n\n\n
                            • As of May 2026, FPIs held G-Secs worth \u20b93,75,171 crore, accounting for 3.34% of the total outstanding G-Secs stock of \u20b9112.42 lakh crore. Notably,\u00a0FAR accounted for\u00a0the majority of\u00a0these investments,<\/strong>\u00a0with FPI holdings of \u20b93.21 lakh crore,\u00a0representing\u00a06.74% of the \u20b947.63 lakh crore outstanding stock eligible under FAR.<\/li>\n<\/ul>\n<\/div><\/div>\n\n\n\n
                                \n
                              • Caps on short-term investment,\u00a0concentration\u00a0and security-wise limits\u00a0<\/strong>on\u00a0FPI investment through the general route<\/strong>\u00a0have also been\u00a0removed<\/strong>\u00a0while keeping the\u00a0overall quantitative investment limit<\/strong>\u00a0of\u00a06% of the outstanding stock of the Central Government Securities<\/strong>\u00a0and\u00a02% of the State Government Securities (SGSs).<\/strong><\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"

                                Reforms to Expand Foreign Participation in G-Secs What\u2019s in the news? Foreign Portfolio Investment (FPI): Foreign Institutional Investment (FII): Government Securities (G-Secs): Bank for International Settlements (BIS): Classification of Capital Gains:<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[12],"tags":[],"class_list":["post-1202","post","type-post","status-publish","format-standard","hentry","category-economy"],"_links":{"self":[{"href":"https:\/\/materials.simplycurrentaffairs.com\/index.php\/wp-json\/wp\/v2\/posts\/1202","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/materials.simplycurrentaffairs.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/materials.simplycurrentaffairs.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/materials.simplycurrentaffairs.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/materials.simplycurrentaffairs.com\/index.php\/wp-json\/wp\/v2\/comments?post=1202"}],"version-history":[{"count":2,"href":"https:\/\/materials.simplycurrentaffairs.com\/index.php\/wp-json\/wp\/v2\/posts\/1202\/revisions"}],"predecessor-version":[{"id":1205,"href":"https:\/\/materials.simplycurrentaffairs.com\/index.php\/wp-json\/wp\/v2\/posts\/1202\/revisions\/1205"}],"wp:attachment":[{"href":"https:\/\/materials.simplycurrentaffairs.com\/index.php\/wp-json\/wp\/v2\/media?parent=1202"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/materials.simplycurrentaffairs.com\/index.php\/wp-json\/wp\/v2\/categories?post=1202"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/materials.simplycurrentaffairs.com\/index.php\/wp-json\/wp\/v2\/tags?post=1202"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}