Central bank announces host of measures to attract foreign capital

RBI Measures to Attract Foreign Capital (June 2026)

UPSC Study Note — Prelims + Mains

1. At a Glance

2. Why in the News

3. Background & Evolution

Year Milestone
2020 RBI introduced Fully Accessible Route (FAR) — unrestricted foreign investment in specified G-secs without any quantitative ceiling (notified March 2020). [S5]
2013 Medium-Term Framework (MTF) for FPI debt limits introduced; G-sec limits set as % of outstanding stock.
2018 RBI proposed Voluntary Retention Route (VRR) — FPIs committing to retain investments for minimum period given higher limits. [S1 background]
2023 (Sep) India's G-secs included in JP Morgan Emerging Market Bond Index — FAR-eligible bonds the qualifying instrument; inclusion effective June 2024.
2024 (Jun) JP Morgan index inclusion went live; Bloomberg EM Local Currency Index also announced India inclusion.
2025–26 FPI outflows resumed due to global uncertainty; RBI undertook successive liberalisation rounds. [S1]
June 2026 Current package — FAR expanded to 15/30/40-year G-secs; General Route caps removed; NRI/OCI/PROI equity limits raised. [S1][S2]

4. Core Static Facts

A. Fully Accessible Route (FAR)

Parameter Detail
Introduced March 2020
Nature No quantitative ceiling on foreign investment
Earlier specified tenors 5-year, 10-year, and select bonds
New tenors added (June 2026) All new issuances of 15-year, 30-year, and 40-year G-secs [S1][S2]
Governing regulation Government Securities Act, 2006; FEMA, 1999
Regulator RBI (in consultation with MoF)

B. FPI — General Route

Parameter Detail
What was removed Limits on (i) short-term investments, (ii) concentration, (iii) individual securities [S1][S2]
Purpose Remove operational friction for FPIs investing in G-secs not under FAR
FPI registration Mandatory with SEBI

C. NRI / OCI / PROI Equity Investment

Parameter Detail
Scheme Portfolio Investment Scheme (PIS)
Existing route NRIs and OCIs only
New expansion All individual Persons Resident Outside India (PROIs) brought at par with NRIs/OCIs [S2]
Change Investment limits in listed equity instruments without SEBI registration increased [S1][S2]
Regulator RBI (PIS) + SEBI (for SEBI-registered entities)

D. External Commercial Borrowings (ECBs) — Incentive Scheme

Parameter Detail
Measure Concessional foreign exchange swap facility for ECBs by PSUs
Validity Till 30 September 2026 [S1]
Purpose Incentivise dollar borrowing by Indian PSUs to augment forex reserves

E. Key Definitions

5. Multi-Dimensional Analysis

Economic

Geopolitical / Strategic

Legal / Constitutional

Administrative / Governance

Historical

6. Recent Developments (Last 12–18 Months)

7. Prelims Hooks

  1. FAR (Fully Accessible Route) for G-secs was introduced by RBI in March 2020. [S5]
  2. Under the June 2026 package, FAR was expanded to include all new issuances of 15-year, 30-year, and 40-year G-secs. [S1][S2]
  3. Three specific limits removed under the General Route for FPIs: (i) short-term investment cap, (ii) concentration limit, (iii) individual securities limit. [S1]
  4. NRI = Indian citizen abroad; OCI = Person of Indian Origin with OCI card; PROI = broader — any person resident outside India under FEMA. [S2]
  5. The Portfolio Investment Scheme (PIS) is the RBI-designated route for NRI/OCI equity investment on Indian stock exchanges. [S2]
  6. As of June 2026, PIS was extended to all individual PROIs, not just NRIs and OCIs. [S2]
  7. The concessional foreign exchange swap facility for ECBs by PSUs is valid till 30 September 2026. [S1]
  8. FPIs withdrew a net $13.4 billion from Indian equities between 1 April and 2 June 2026. [S1]
  9. SEBI (FPI) Regulations, 2019 govern FPI registration; the General Route operates under these regulations co-administered with RBI. [S2]
  10. India's G-secs were included in the JP Morgan Emerging Market Bond Index from June 2024 — FAR bonds are the qualifying instrument. [S3]
  11. FAR investment has no quantitative ceiling — distinguishing it from the General Route which had sub-limits. [S1]
  12. Regulator for PIS: RBI; regulator for FPI equity purchases via registered route: SEBI. [S2]
  13. The estimated combined government + RBI measures could attract $45–80 billion in foreign inflows (analyst estimate). [S4]

8. Mains Relevance

GS Paper Syllabus Heading
GS-III Indian Economy — Mobilisation of resources; Capital markets; External sector; Monetary Policy
GS-II Government policies and interventions — regulatory institutions (RBI, SEBI)
GS-III Effects of liberalisation on the economy; Foreign capital and its role

Plausible Mains Questions:

  1. "The RBI's Fully Accessible Route (FAR) is India's most significant step towards capital account liberalisation in G-secs. Critically examine its design, recent expansion, and implications for India's sovereign debt market." (GS-III, 15 marks)

  2. "Discuss the challenges and opportunities arising from large-scale foreign portfolio investment in Indian government securities. How do the measures announced in June 2026 address structural concerns?" (GS-III, 10 marks)

  3. "What is the Portfolio Investment Scheme (PIS)? In the context of the June 2026 RBI measures, evaluate the significance of extending PIS to all Persons Resident Outside India." (GS-III, 10 marks)

9. Related Topics to Study Next

Topic Connection
Capital Account Convertibility (Tarapore Committee) Theoretical foundation for all FPI/FAR liberalisation; examiners test the continuum from partial to full convertibility.
Foreign Portfolio Investment (FPI) vs FDI Core definitional distinction (10% threshold); often confused in MCQs.
JP Morgan EM Bond Index & Bloomberg EM Index Direct trigger for FAR expansion; understand which bonds qualify and why India's inclusion matters.
External Commercial Borrowings (ECB) Framework The ECB concessional swap is one prong of the June 2026 package; ECB routes, end-use restrictions are frequently tested.
FEMA, 1999 — Capital Account Transactions Statutory basis for all these measures; Schedule-wise instrument classification (debt vs. non-debt) is tested.
RBI's Monetary Policy Framework June 2026 measures were announced alongside/after MPC decisions — contextualise with repo rate, inflation targeting.
Rupee Exchange Rate Management FPI outflows directly impact INR; RBI's forex intervention toolkit is a connected GS-III topic.
SEBI (FPI) Regulations, 2019 Regulatory framework underpinning General Route; know Category I, II, III FPI classification.

10. Common Errors / Trap Areas

  1. FAR ≠ General Route: FAR has no ceiling; General Route has/had quantitative sub-limits. Aspirants often conflate the two or assume FAR is a sub-category of the General Route — it is a parallel, unrestricted route. [S1]

  2. NRI ≠ OCI ≠ PROI: NRI is a tax/FEMA status (citizen abroad); OCI is a citizenship-linked status (PIO with lifetime visa); PROI is the broadest FEMA category (any person outside India, including foreign nationals). The June 2026 extension to PROIs is a significant broadening — do not restrict it to NRI/OCI only. [S2]

  3. Regulator confusion: RBI regulates debt securities and forex (FAR, PIS, ECB); SEBI regulates equity portfolio investment (FPI registration). The NRI/OCI PIS change sits under RBI, not SEBI. [S2]

  4. FAR inception year: FAR was introduced in March 2020, not 2023 (year of JP Morgan announcement) or 2024 (year of actual inclusion). The two events are distinct. [S5]

  5. G-sec tax exemption ≠ RBI measure: The interest income tax exemption on G-secs for foreign investors is a Government of India / MoF fiscal measure — not an RBI announcement. Both were announced around the same time (June 2026) but come from different authorities. [S4]

11. Sources