UPSC Prelims Practice Questions — Reforms to Expand Foreign Participation in G-Secs

Q1. Under the Reserve Bank of India's Fully Accessible Route (FAR) framework, the term 'specified securities' refers exclusively to:

• A. All outstanding Central Government dated securities, irrespective of tenor or year of issue
• B. Designated Government of India dated securities, together with all new issuances of 5-year, 10-year and 30-year G-Secs from FY 2020-21 onwards
• C. State Development Loans (SDLs) and Central Government securities held in the SGL accounts of foreign central banks
• D. Sovereign Gold Bonds and inflation-indexed Government securities issued on behalf of the Government of India

Q2. With reference to the Fully Accessible Route (FAR) and the Voluntary Retention Route (VRR) for non-resident investment in Indian debt, consider the following statements: 1. The FAR was operationalised by the Reserve Bank of India with effect from 1 April 2020, whereas the VRR was introduced earlier, in March 2019. 2. Unlike the VRR, the FAR does not impose any minimum retention period or quantitative investment ceiling on non-residents for the specified securities. 3. Both the FAR and the VRR are open only to foreign central banks and sovereign wealth funds, and not to SEBI-registered Foreign Portfolio Investors. Which of the statements given above is/are correct?

1. The FAR was operationalised by the Reserve Bank of India with effect from 1 April 2020, whereas the VRR was introduced earlier, in March 2019.
2. Unlike the VRR, the FAR does not impose any minimum retention period or quantitative investment ceiling on non-residents for the specified securities.
3. Both the FAR and the VRR are open only to foreign central banks and sovereign wealth funds, and not to SEBI-registered Foreign Portfolio Investors.

• A. 1 only
• B. 1 and 2 only
• C. 2 and 3 only
• D. 1, 2 and 3

Q3. With reference to the Fully Accessible Route (FAR) for non-resident investment in Government Securities, consider the following statements:

1. When the FAR was operationalised by the Reserve Bank of India with effect from 1 April 2020, it covered all new issuances of 5-year, 10-year and 30-year Government Securities as 'specified securities'.
2. The June 2026 reforms extend the FAR to include new issuances of 15-year and 40-year Government Securities, as well as Sovereign Green Bonds in FAR-eligible tenors.
3. Under the June 2026 reforms, the 'General' and 'Long-Term' categories for Foreign Portfolio Investor (FPI) investment in Government Securities continue to operate as separate channels, each with its own investment limit.

• A. 1 only
• B. 1 and 2 only
• C. 2 and 3 only
• D. 1, 2 and 3

Q4. The tax exemption granted in June 2026 to Foreign Institutional Investors (including SEBI-registered FPIs) on interest income and capital gains arising from Government Securities was effected through which one of the following?

• A. An amendment to the Income-tax Act, 2025 carried out by the Income-tax (Amendment) Ordinance, 2026 promulgated by the President
• B. A notification issued by the Central Board of Direct Taxes under Section 10 of the Income-tax Act, 1961
• C. A circular issued by the Reserve Bank of India under the Foreign Exchange Management Act, 1999
• D. A regulation issued by the Securities and Exchange Board of India under the SEBI Act, 1992

Q5. Which one of the following was the first dedicated channel introduced by the Reserve Bank of India to enable Foreign Portfolio Investors to make long-term investments in the Indian debt market free of macro-prudential limits?

• A. Fully Accessible Route (FAR)
• B. Voluntary Retention Route (VRR)
• C. General Route under the Medium Term Framework
• D. Long Term Investor Route under FEMA Debt Regulations

Q6. With reference to the routes available to Foreign Portfolio Investors (FPIs) for investing in Indian debt, consider the following statements: 1. Under the Fully Accessible Route (FAR), no investment ceiling is prescribed for non-resident investment in the specified Government securities. 2. Under the Voluntary Retention Route (VRR), an FPI must retain a minimum of 75% of its Committed Portfolio Size for a minimum period of three years. 3. The General Route operates under a Medium Term Framework which prescribes quantitative limits on FPI investment in G-Secs, SDLs and corporate bonds. Which of the statements given above are correct?

1. Under the Fully Accessible Route (FAR), no investment ceiling is prescribed for non-resident investment in the specified Government securities.
2. Under the Voluntary Retention Route (VRR), an FPI must retain a minimum of 75% of its Committed Portfolio Size for a minimum period of three years.
3. The General Route operates under a Medium Term Framework which prescribes quantitative limits on FPI investment in G-Secs, SDLs and corporate bonds.

• A. 1 and 2 only
• B. 2 and 3 only
• C. 1 and 3 only
• D. 1, 2 and 3

Q7. With reference to the inclusion of Indian Government Securities in global bond indices, consider the following statements: 1. India's phased inclusion in the J.P. Morgan GBI-EM Global Diversified Index commenced on 28 June 2024 and is scheduled to be completed over a ten-month period. 2. The Bloomberg Emerging Market Local Currency Government Index began phasing in India's Fully Accessible Route (FAR) bonds from 31 January 2025, also over a ten-month period. 3. India's maximum weight in the J.P. Morgan GBI-EM Global Diversified Index has been capped at 5 per cent. Which of the statements given above is/are correct?

1. India's phased inclusion in the J.P. Morgan GBI-EM Global Diversified Index commenced on 28 June 2024 and is scheduled to be completed over a ten-month period.
2. The Bloomberg Emerging Market Local Currency Government Index began phasing in India's Fully Accessible Route (FAR) bonds from 31 January 2025, also over a ten-month period.
3. India's maximum weight in the J.P. Morgan GBI-EM Global Diversified Index has been capped at 5 per cent.

• A. 1 only
• B. 1 and 2 only
• C. 2 and 3 only
• D. 1, 2 and 3

Q8. In the context of foreign participation in Indian Government Securities — the channel under which Indian sovereign bonds were made eligible for inclusion in the J.P. Morgan GBI-EM and Bloomberg EM Local Currency Government indices — the term 'Fully Accessible Route (FAR)' most accurately refers to:

• A. A separate channel notified by the RBI in consultation with the Government of India under which non-residents can invest in specified Government of India dated securities without any investment ceilings.
• B. A channel under which Foreign Portfolio Investors must commit to a minimum retention period for their G-Sec holdings in return for exemption from macro-prudential limits.
• C. A combined quantitative ceiling fixed jointly by the RBI and SEBI on the aggregate stock of FPI investment in central and state government securities.
• D. An automatic route permitting foreign direct investment by sovereign wealth funds in Indian public sector debt mutual funds.

Q9. With reference to the Indian sovereign debt market, State Development Loans (SDLs) are issued by which one of the following?

• A. The Reserve Bank of India on its own account, to manage system liquidity
• B. State Governments, through auctions conducted by the Reserve Bank of India
• C. The Department of Economic Affairs, Ministry of Finance, on behalf of the State Governments
• D. State-level financial corporations regulated by the Securities and Exchange Board of India

Q10. In the context of the Government securities market in India, the term 'dated securities' refers to:

• A. Short-term zero-coupon instruments issued at a discount and redeemed at face value with original maturity of less than one year
• B. Long-term Government securities with original maturity of one year or more, carrying fixed or floating coupons typically paid semi-annually
• C. Non-tradeable special securities issued by the Government of India to recapitalise public sector banks
• D. Securities issued exclusively by State Governments under the Voluntary Retention Route for foreign investors

Q11. With reference to recent reforms to broaden foreign participation in Indian Government Securities (G-Secs) and their macro implications, consider the following statements:

1. The Fully Accessible Route (FAR) has been expanded to cover new issuances of 15-year, 30-year and 40-year G-Secs as well as Sovereign Green Bonds.
2. Foreign Portfolio Investments in Central Government securities under the General Route are now free from any overall quantitative ceiling.
3. India's sovereign bonds were included in the J.P. Morgan Government Bond Index–Emerging Markets (GBI-EM), with phased inclusion commencing in 2024.
4. Under the 'impossible trinity', a country can simultaneously maintain an independent monetary policy, an open capital account and a managed exchange rate.

• A. 1 and 3
• B. 2 and 4
• C. 1, 2 and 3
• D. 3 and 4 only

Q12. Among the various routes presently available to Foreign Portfolio Investors (FPIs) for investing in Indian Government Securities, which one accounts for the largest share of FPI holdings of G-Secs?

• A. General Route
• B. Voluntary Retention Route (VRR)
• C. Fully Accessible Route (FAR)
• D. Medium-Term Framework (MTF) Route

Q13. Which one of the following entities owns the Negotiated Dealing System-Order Matching (NDS-OM) platform used for secondary market trading in Government securities in India?

• A. Securities and Exchange Board of India
• B. Clearing Corporation of India Limited
• C. Reserve Bank of India
• D. National Stock Exchange of India

Q14. With effect from which one of the following dates did the Reserve Bank of India, in consultation with the Government of India, operationalise the 'Fully Accessible Route' (FAR) for non-resident investment in specified Government of India dated securities?

• A. 1 October 2019
• B. 1 April 2020
• C. 1 October 2020
• D. 1 April 2021