India makes big moves to attract foreign investments in bonds: How will this impact stock market?
GS3Economy · S&T · Environment · Security· Capital markets & SEBI· Prelims + Mains·
Why in news
The RBI Governor Sanjay Malhotra announced measures to attract foreign investment, including exempting FIIs from capital gains tax on government securities and expanding the Fully Accessible Route (FAR).
Background
The RBI unveiled measures to expand the Fully Accessible Route (FAR) for government bonds and increased investment limits for NRIs and OCIs in equity instruments. The government also exempted Foreign Institutional Investors (FIIs) from capital gains tax on investments in government securities.
Facts for Prelims
- FactFIIs: Exempted from capital gains tax on investments in government securities.
- BodyRBI: Announced expansion of the Fully Accessible Route (FAR) for government bonds.
- FactNRIs and OCIs: Investment limits in equity instruments have been raised.
- PostSanjay Malhotra: Governor of the Reserve Bank of India (RBI).
For Mains
Q. Examine how expanding the Fully Accessible Route (FAR) and tax exemptions for FIIs can influence India's capital market liquidity and macroeconomic stability.
Dimensions to cover in your answer
- Monetary policy friction: Balancing hawkish RBI stance with the need for increased foreign capital inflows.
- Market volatility: Potential for rapid capital flight or inflow affecting domestic equity and debt price stability.
- Regulatory arbitrage: Impact of tax exemptions on the competitive landscape of Indian government securities.
Keywords: Capital Market Liquidity · Foreign Institutional Investors · Fully Accessible Route · Monetary Policy · Capital Gains Tax
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