Why in the News?
In 2025, foreign investors have invested only about ₹69,000 crore ($7.8 billion) nearly half than expected, into Indian government bonds, even though the rules were made simpler and more flexible under the Fully Accessible Route (FAR) to attract more investment.
What is Fully Accessible Route (FAR)?
- Overview: A special investment framework launched by the Reserve Bank of India (RBI) in March 2020 to attract foreign investment in Indian government securities (G-secs).
- Purpose: Aims to liberalise India’s debt market, enhance foreign participation, and integrate it with global financial systems.
- Eligible Investors: Open to Foreign Portfolio Investors (FPIs), Non-Resident Indians (NRIs), and Overseas Citizens of India (OCIs) without investment caps.
- Key Feature: Permits unlimited foreign investment in designated government bonds with free buy–sell access and no quantitative ceiling.
- Liquidity & Integration: Designed to improve bond market depth, diversify funding sources, and boost India’s visibility in global debt indices.
- Repatriation Freedom: Allows investors to repatriate capital and profits freely to their home countries.
- Global Milestone: In June 2024, JP Morgan included 29 Indian G-secs under FAR in its Emerging Market Bond Index (EMBI), marking India’s debut in major global bond benchmarks.
Comparison with Other Routes:
Complementary Function: FAR, MTF, and VRR operate together, providing flexibility in investment terms and balancing market stability with foreign access. |
Why were higher inflows expected?
- Projected Inflows: Index inclusion in 2024–25 was expected to attract $20–25 billion from global institutional and index-tracking investors.
- Attractiveness Factors: India’s 7% stable yields, macroeconomic strength, and favourable risk–return ratio made it a promising destination for long-term capital.
- Actual Outcome: Only $10.7 billion flowed in during 2024-25: well below expectations.
- Key Reasons:
- Global monetary uncertainty: investors awaited clarity on the US Federal Reserve’s rate policy.
- Domestic caution: RBI removed 14- and 30-year bonds from FAR in 2024 to reduce volatility.
- Geopolitical tensions and FPI withdrawals from equities reduced investor appetite.
- Significance: Despite lower inflows, FAR remains a structural reform strengthening India’s position as a globally accessible and competitive bond market.
| [UPSC 2024] Consider the following statements:
1. In India, Non-Banking Financial Companies can access the Liquidity Adjustment Facility window of the Reserve Bank of India. 2. In India, Foreign Institutional Investors can hold the Government Securities (G-Secs). 3. In India, Stock Exchanges can offer separate trading platforms for debts. Which of the statements given above is/are correct? Options: (a) 1 and 2 only (b) 3 only (c) 1, 2 and 3 (d) 2 and 3 only* |
Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024
