Foreign Investment in Indian Government Bonds Hits Record High on Tax Reforms

Foreign investors have poured a record $3 billion (around ₹25,000 crore) into Indian government bonds during June 2026, marking the strongest monthly inflow since the introduction of the Fully Accessible Route (FAR). The surge follows recent tax reforms and growing expectations that Indian government bonds could be included in the Bloomberg Global Aggregate Bond Index, making them more attractive to global investors.

The Government recently removed the 12.5% long-term capital gains tax on eligible foreign investments in government bonds and also abolished the 20% withholding tax on interest income for specified overseas investors. These measures have significantly improved the attractiveness of Indian debt securities by increasing post-tax returns for global investors.

The Reserve Bank of India (RBI) has also expanded the range of securities available under the Fully Accessible Route, allowing foreign investors to purchase more long-term government bonds without investment limits. Analysts believe these policy changes, combined with India’s stable macroeconomic environment, are driving renewed international interest in the country’s debt market.

Market experts note that increased foreign participation in government bonds can help reduce borrowing costs for the government while improving liquidity in the bond market. Strong inflows also reflect investor confidence in India’s economic outlook, fiscal management and monetary policy framework.

Another factor supporting investor sentiment has been the decline in global crude oil prices. Lower oil prices are expected to ease inflationary pressures, improve India’s current account balance and create a more favourable environment for fixed-income investments.

Financial analysts expect overseas investment in Indian debt markets to remain strong over the coming months if global index inclusion progresses and domestic economic fundamentals continue to improve. Stable inflation, healthy economic growth and supportive regulatory reforms are likely to remain key drivers of foreign capital inflows.

The latest investment trend highlights India’s growing importance in global fixed-income markets. Continued policy reforms and greater accessibility for international investors are expected to strengthen the country’s position as an attractive destination for long-term debt investments.