Govt, RBI's June 5 bond measures working; pull 8 months of foreign money in two weeks

📌 Summary:

• Measures announced by the Government and RBI on June 5 to attract foreign capital into Indian sovereign bonds are working — Fully Accessible Route (FAR) bonds saw ~$2 billion inflows in two weeks, nearly equal to the previous eight months combined
• Net FAR-bond inflows in June rose to $2.2 billion — the highest in 15 months; FPIs net bought on all but one day
• Trigger: removal of long- and short-term capital gains tax and withholding tax on FPI investment in government bonds, plus expansion of the FAR securities pool
• Aim: spur inclusion of Indian government bonds in the Bloomberg Global Aggregate Bond Index, which could attract $20-30 billion of passive funds over ~10 months post-inclusion; Bloomberg deferred inclusion in January, to update by mid-2026
• Indian debt already added to JPMorgan, Bloomberg EM Local Currency, and FTSE Russell indices
• 10-year benchmark yield fell to 6.77% (22 bps below June 4); RBI Governor Sanjay Malhotra argued against rate-hike expectations
• However FPIs keep dumping equities ($5.55 billion net sales in June); overall net FPI flow still -$562 million; rupee near 94.40/$
• Two temporary RBI schemes encourage PSUs to borrow abroad and NRIs to deposit foreign currency (FCNR-B deposits at $33.92 billion)

🎯 UPSC Relevance: GS3 Economy — capital flows (FPI vs FDI), sovereign bond market, global bond index inclusion, exchange-rate and yield dynamics, RBI's liquidity/forex management

📝 Prelims Facts:

• FAR = Fully Accessible Route: government bonds foreigners can invest in without limits
• Bond yields move inversely to prices; 1 basis point = one-hundredth of a percentage point
• Indian G-secs are in JPMorgan, Bloomberg EM Local Currency and FTSE Russell indices
• FCNR(B) = Foreign Currency Non-Resident (Bank) deposits

🔑 Key Term: Fully Accessible Route (FAR) — a category of government securities open to non-resident investment without any quantitative ceiling.