- Why in news
- On 5 June 2026, the Finance Ministry announced steps to widen PROI investment in listed equities and to ease FPI access to G-Secs, including a tax exemption on their interest and capital gains.
- What it is
- The Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 govern foreign investment in instruments such as equity. The Portfolio Investment Scheme lets NRIs/OCIs buy listed Indian company shares through designated bank branches. The Fully Accessible Route (FAR) lets non-residents invest in specified G-Secs without investment ceilings.
- PROI access to PIS
- Individual PROIs can now invest in listed Indian companies' equity through the Portfolio Investment Scheme, earlier open only to NRIs/OCIs.
- Rules used
- The change is made by notifying the Foreign Exchange Management (Non-Debt Instruments) (Third Amendment) Rules, 2026, through the Department of Economic Affairs.
- FAR expansion
- FAR now covers new G-Sec issues of 15, 30 and 40 year tenors and Sovereign Green Bonds.
- General Route limits
- Three restrictions are removed under the General Route, but the overall caps stay at 6% of Central G-Secs and 2% of State Government securities.
Don’t confuse with FAR vs General Route: FAR has no investment ceiling on specified G-Secs; the General Route has overall caps of 6% (Central) and 2% (State).
Don’t confuse with PROI vs NRI/OCI: PROI is the wider category of persons resident outside India; NRIs and OCIs are subsets of it that had PIS access earlier.
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
- Deeper G-Sec demand from long-term investors helps smooth the yield curve.
- Stable foreign inflows can support the rupee and ease financing of the deficit.
Problems
- Foreign holdings in G-Secs can reverse suddenly and raise volatility in yields and the exchange rate.
- The tax exemption means some revenue loss.
Way forward
- Monitor flows and keep tools to manage sudden outflows.
- Deepen the domestic investor base so reliance on foreign capital stays moderate.
Put in your answer
FAR limits: General Route caps retained at 6% of Central and 2% of State securities.
Tax parity: The G-Sec tax exemption aligns India with comparable jurisdictions.
- 2014Mains GS2 · Q7Critically evaluate pros and cons of raising FDI limits in news media
- 2016Mains GS3 · Q5Justify FDI's need for India and explain the gap between MoUs and actual FDI
- 2014Mains GS3 · Q9Impact of liberalised FDI in defence sector on defence and economy
- 2020Prelims Q51Major characteristic of FDI: non-debt-creating capital flow through equity instruments
- 2012Prelims Q78Which items would include FDI: subsidiaries, majority equity, foreign-financed companies
- 2019Prelims Q67Instrument issued by registered FPIs to overseas investors for Indian market access
UPSC’s own questions that come close to this issue, from our Prelims and Mains banks.
Prelims practice · Statements
Ours, not from a UPSC paper
Consider the following statements:
- 1.Under the Portfolio Investment Scheme, individual Persons Resident Outside India (PROIs) are now permitted to invest in listed Indian companies, a facility earlier available only to NRIs/OCIs.
- 2.Under the General Route, the overall FPI limit on Central Government securities has been removed along with the short-term, concentration and security-wise limits.
- 3.Sovereign Green Bonds in FAR-eligible tenors and new Government securities of 15, 30 and 40 year tenors have been brought under the Fully Accessible Route.
Which of the statements given above is/are correct?
True or false?
1 of 5
Statements the way Prelims prints them. Say first, then see the fact.
1.Under the Portfolio Investment Scheme, individual PROIs are now permitted to invest in listed Indian companies, a facility earlier available only to NRIs/OCIs.
True. PIS access has been extended to individual PROIs.
2.The overall limit for all individual PROIs under the scheme has been raised from 5% to 10%.
False. The individual limit per company rises from 5% to 10%; the overall limit for all individual PROIs rises from 10% to 24%.
3.Sovereign Green Bonds are now eligible under the Fully Accessible Route.
True. FAR now includes Sovereign Green Bonds in FAR-eligible tenors.
4.Under the General Route, the overall FPI limit on Central G-Secs has been removed along with the short-term, concentration and security-wise limits.
False. The overall limits of 6% (Central) and 2% (State) are retained.
5.Investment above 10% of a company's paid-up equity by a foreign portfolio investor is classified as foreign direct investment.
False. Under NDI Rules, a non-resident holding of 10% or more in an Indian company is treated as FDI, not portfolio investment, in the sense that the FPI limit is below 10%; the usual rule is that FPI holding must stay below 10% of paid-up equity.
Written by us from the release, not by UPSC; checked by a second model.
Mains practice
15 marks · 250 words
The Government has recently widened Persons Resident Outside India's access to listed equities under the Portfolio Investment Scheme, expanded the Fully Accessible Route for G-Secs, relaxed General Route limits for FPIs and exempted their G-Sec interest and capital gains from income tax. Discuss the objectives of these measures and examine their likely benefits and risks for India's macroeconomic stability.
Worth revising until Prelims 2028: most news questions come within two years of the event.