Big Relief For FPIs: RBI Opens Long-Term Bonds As Govt Prepares Major Capital Gains Tax Exemption

Reserve Bank of India’s (RBI) monetary policy review shifted entirely to aggressive capital market changes on Friday, as the central bank rolled out massive operational relief to draw foreign portfolio investors (FPIs) back into domestic debt channels.

While the Monetary Policy Committee (MPC) kept the benchmark repo rate frozen at 5.25%, Governor Sanjay Malhotra launched a major policy offensive to make Indian government bonds highly profitable for global funds, acting defensively as geopolitical shocks trigger aggressive capital flight from emerging markets.

FAR Channel for Ultra-Long Bonds

Governor Malhotra announced that the central bank is expanding the operational window under the Fully Accessible Route (FAR), which allows unlimited foreign investment without local caps, to include ultra-long-term papers. Previously, FPI access under the FAR route was primarily concentrated around short-to-medium-term instruments up to 10-year tenures.

"For government securities under FAR, which is the Fully Accessible Route, we are expanding the universe of specified securities by including all new issuances of 15, 30, and 40-year tenure G-Secs,” said Sanjay Malhotra, RBI Governor. 

The expansion is designed to lock in long-term, patient foreign institutional capital at a time when global fund managers are heavily rebalancing their portfolios away from risky assets.

FPI Bond Tax Relief

Financial markets opened in the green on Friday following strong reports that the government is rolling out a special ordinance to give major tax relief to offshore funds.

The incoming ordinance reportedly looks to completely scrap capital gains tax liabilities on investments made by FPIs in central government securities.

By eliminating the tax burden on sovereign debt and pairing it with the RBI’s expanded maturity options, India is effectively removing operational friction for global index-tracking funds, maximizing net-of-tax yields for offshore institutions.

Defending Rupee

The sudden acceleration of FPI debt relief points directly to the central bank's focus on defending the Indian rupee. With Brent crude oil prices climbing to $95 per barrel amid the ongoing West Asia crisis, India's current account deficit faces immediate pressure.

Governor Malhotra pointed out that global supply chain disruptions and high energy inputs continue to weigh heavily on macro projections, forcing a downward revision of India's FY27 GDP growth forecast to 6.6%.

The wave of anticipated FPI inflows will create a reliable dollar buffer, capping domestic borrowing costs and absorbing global currency shocks without requiring the central bank to burn through its formal forex reserves aggressively.

Also read: RBI MPC Keeps Policy Repo Rate Unchanged At 5.25%