India removes capital-gains tax on government bonds for foreign investors

The Reserve Bank of India and the Indian government have eliminated capital-gains tax on government bonds for foreign portfolio investors ^[1].

These measures aim to stabilize the rupee and make Indian sovereign debt more attractive to global investors. By lowering the cost of entry and exit for foreign capital, the government seeks to increase the liquidity of its bond markets.

The policy shift follows a cabinet meeting chaired by Prime Minister Narendra Modi on June 3, 2024 ^[2]. The government said there is a 0% tax on capital gains for foreign portfolio investors holding government bonds ^[1]. This move is designed to draw significant foreign investment into the country's debt instruments.

Alongside the tax exemption, the Reserve Bank of India kept its policy rates unchanged. The central bank also said it is reviving Foreign Currency Non-Resident (FCNR) deposits to encourage the inflow of foreign exchange.

Further incentives were introduced for external commercial borrowing (ECB) to help Indian entities raise funds from international markets more efficiently. These combined efforts reflect a strategic push to bolster the national currency and integrate Indian financial markets more deeply with the global economy.

The RBI and the cabinet said these changes are intended to create a more favorable environment for international asset managers. By removing the tax burden, the government is positioning its bonds as competitive alternatives to other emerging market debts.