RBI Expands Foreign Investment Access to Government Bonds Amid Economic Challenges
Contents4
Indian Express - Opinion · 19 Jun 2026 · 2 min read
Prelims · Economy Mains · GS3 Economy High relevance
The RBI expanded the Fully Accessible Route (FAR) for foreign investment in long-term government bonds and removed caps on foreign portfolio investors to attract USD 30-40 billion inflows, addressing India's growing current account deficit and depreciating rupee.
Key points
Fully Accessible Route (FAR): The RBI expanded FAR to include 15-year, 30-year, and 40-year government bonds for foreign investors, aiming to stabilize the rupee and boost forex reserves.
Tax Exemptions: An Ordinance exempted foreign investors from long-term capital gains (12.5%) and withholding tax (20%) on bond sales, enhancing India's attractiveness for foreign capital.
Current Account Deficit (CAD): India's CAD reached USD 25 billion in 2025-26, with goods trade deficit at USD 333 billion and gold imports at USD 72 billion, highlighting macroeconomic vulnerabilities.
Foreign Direct Investment (FDI): Net FDI was only USD 6.9 billion, reflecting low investor confidence in India's economy and stock market.
Gross Fixed Capital Formation (GFCF): Stagnant at 32.3% since 2022-23, with private sector reluctance to invest in manufacturing, which remains at 17% of GVA.
[GS3-Economy]: The measures aim to address India's external sector vulnerabilities, crucial for macroeconomic stability and a potential UPSC question on balance of payments management.
Household Debt and Savings: Household debt rose to 41% of GDP, while savings fell below 6%, indicating financial stress and reduced consumption capacity.
Way Forward: The government should prioritize increasing minimum wages, cutting consumption taxes, scaling up educational loans, and fully funding rural development schemes like MGNREGS to stimulate demand and investment.
Key terms
- Current Account Deficit (CAD)
- The difference between India's imports and exports of goods and services, plus net income and transfers. A high CAD (USD 25 billion in 2025-26) strains forex reserves and currency stability, making it a critical indicator for UPSC's economic syllabus.
- Gross Fixed Capital Formation (GFCF)
- Measures total investment in physical assets like infrastructure and machinery. Stagnant GFCF (32.3%) reflects weak private sector participation, impacting long-term growth potential—a key topic in GS3 (Economic Development).
- Withholding Tax
- A tax deducted at source on income paid to non-residents. The Ordinance's exemption for foreign bond investors aims to enhance India's competitiveness in global capital markets, relevant for GS3 (Investment Models).
- Fully Accessible Route (FAR)
- A RBI scheme allowing foreign investors unrestricted access to specified government bonds. It aims to attract stable foreign inflows, diversify investor base, and reduce reliance on volatile portfolio flows, crucial for India's external debt management and forex reserves stability.
Practice question
Discuss the implications of the RBI's expansion of the Fully Accessible Route (FAR) for foreign investment in government bonds, in the context of India's current macroeconomic challenges. (250 words, 15 marks)
GS3 15 marks 250 words Mains
Key terms to include: Fully Accessible Route (FAR) Current Account Deficit (CAD) Gross Fixed Capital Formation (GFCF) Withholding Tax Forex Reserves Macroeconomic Stability Foreign Direct Investment (FDI) Household Debt
Answer framework
Introduction
Briefly introduce the RBI's decision to expand FAR for foreign investment in long-term government bonds, highlighting the context of India's current account deficit and depreciating rupee.
Economic Rationale
Addressing Current Account Deficit (CAD) by attracting USD 30-40 billion inflows.
Stabilizing the rupee and boosting forex reserves through diversified investor base.
Policy Measures
Expansion of FAR to include 15-year, 30-year, and 40-year government bonds.
Tax exemptions on long-term capital gains and withholding tax to enhance attractiveness.
Macroeconomic Vulnerabilities
High CAD (USD 25 billion) and goods trade deficit (USD 333 billion).
Stagnant Gross Fixed Capital Formation (GFCF) at 32.3% and low FDI (USD 6.9 billion).
Potential Risks
Increased reliance on foreign capital may lead to volatility in bond markets.
Household debt rising to 41% of GDP and savings falling below 6% indicate underlying financial stress.
Conclusion
Suggest a balanced approach: while FAR expansion is a positive step, complementary measures like increasing minimum wages, cutting consumption taxes, and funding rural schemes like MGNREGS are essential for sustainable economic stability.
Fact check
Issues found Overall severity: medium
India's CAD reached USD 25 billion in 2025-26, with goods trade deficit at USD 333 billion and gold imports at USD 72 billion
The source text mentions estimates ('expected to have closed with over USD 25 billion', 'estimate of the goods trade deficit for the year is USD 333 billion', 'estimate of gold imports is USD 72 billion'), not confirmed figures. Severity: medium
Net FDI was only USD 6.9 billion
The source text describes this as 'a paltry USD 6.9 billion', but does not confirm it as the only or final figure. Severity: medium
Gross Fixed Capital Formation (GFCF): Stagnant at 32.3% since 2022-23
The source text states 'GFCF at constant prices has been stuck at 32.3 per cent since 2022-23', which matches the claim. Severity: none
Household debt rose to 41% of GDP, while savings fell below 6%
The source text mentions 'household debt has risen (41 per cent of GDP), household financial savings have decreased (< 6 per cent of GDP)', which matches the claim. Severity: none
The RBI expanded FAR to include 15-year, 30-year, and 40-year government bonds for foreign investors
The source text confirms this expansion: 'the Fully Accessible Route (FAR) to government bonds was expanded to include new 15-year, 30-year and 40-year government bonds for investment by foreign investors'. Severity: none
An Ordinance exempted foreign investors from long-term capital gains (12.5%) and withholding tax (20%) on bond sales
The source text states: 'the government promulgated an Ordinance to exempt foreign investors from long-term capital gains (12.5 per cent) and withholding tax (20 per cent) on sale of the bonds', which matches the claim. Severity: none