- Why in news
- On 6 June 2026, the Government set out reforms to raise foreign portfolio investor (FPI) participation in G-Secs: a tax exemption, a wider Fully Accessible Route (FAR) and looser General Route limits.
- What it is
- The Fully Accessible Route (FAR) is a channel for foreign investors to buy select Indian government securities without the restrictions of the General Route. The General Route has caps on security-wise investment, holding period and overall limits. FAR was created to make Indian bonds easier for global investors to hold and to support inclusion in global bond indices.
- FAR vs General Route
- FAR is an open-access channel for select G-Secs. It is free of the restrictions that apply under the General Route.
- Tax exemption
- FPIs/FIIs are exempt from tax on G-Sec interest and capital gains for income arising on or after 1 April 2026. The Income-tax (Amendment) Ordinance, 2026 inserted the provisions.
- Nature of FPI
- FPIs are passive investors who do not take part in managing the companies they invest in.
Don’t confuse with FPI vs FDI: FPI is passive investment in securities with no management role. FDI brings lasting interest and control in a business.
Don’t confuse with FAR vs General Route: FAR has no investment caps on eligible securities. The General Route keeps overall limits on Central and State securities.
Economy terms and data: 42 Prelims questions since 2013, rising in recent years; they test what a term or instrument means. In Mains, 12 news-triggered questions.
Why it matters
- Wider foreign demand can lower government borrowing costs and smooth the yield curve.
- It supports India's inclusion in global bond indices and brings long-term capital inflows.
Problems
- Foreign debt flows can reverse suddenly and put pressure on the rupee and yields.
- The tax exemption means lost revenue and a bigger role for volatile global capital.
Way forward
- Build a deeper domestic investor base to cushion against sudden foreign outflows.
- Watch flows closely and keep macroprudential and liquidity tools ready.
- 2019Prelims Q67Instrument letting overseas investors join Indian market without registering
- 2024Prelims Q42Whether FIIs can hold G-Secs; NBFC LAF access; debt platforms.
- 2024Prelims Q43Who may trade corporate bonds and G-Secs: insurers, pensions, retail?
UPSC’s own questions that come close to this issue, from our Prelims and Mains banks.
No practice question for this one; the card may still help an answer. Why: FAR and FPI in G-Secs are lasting economy terms. Economy terms drew 42 Prelims questions. This explainer has few fresh facts for a question, so it gets a card only.
Worth revising until Prelims 2028: most news questions come within two years of the event.