India makes big moves to attract foreign investments in bonds: How will this impact stock market?
GS3Economy · S&T · Environment · Security· Monetary policy, RBI & banking· Prelims + Mains·
Why in news
The Indian government and RBI introduced measures to attract foreign capital by removing capital gains tax on FII investments in government securities and expanding the Fully Accessible Route (FAR).
Background
The government removed capital gains tax on FII investments in government securities and exempted them from tax on interest income and capital gains. The RBI expanded the Fully Accessible Route (FAR) for government bonds and raised investment limits for NRIs and OCIs in listed equity instruments.
Facts for Prelims
- FactFIIs: Foreign Institutional Investors are exempted from capital gains tax on government securities investments.
- BodyRBI: The Reserve Bank of India expanded the Fully Accessible Route (FAR) for government bonds.
- FactNRIs and OCIs: Investment limits for these categories in listed equity instruments have been raised.
For Mains
Q. Analyze how fiscal incentives and regulatory relaxations for foreign portfolio investments can influence India's capital market depth and liquidity.
Dimensions to cover in your answer
- Market volatility: Potential for short-term liquidity surges vs. long-term capital flight risks
- Monetary friction: Balancing capital inflow incentives against the RBI's hawkish policy stance
- Market depth: Impact of increased FII participation on the stability of government securities
Keywords: Capital Gains Tax · Foreign Institutional Investors · Fully Accessible Route · Market Liquidity · Capital Inflow
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