India Attracts Global Funds Into Government Bonds After Tax Removal, Stabilizes Rupee

Global investment funds are increasing their exposure to Indian government bonds after the Centre introduced a series of reforms aimed at making the country's debt market more attractive to overseas investors. The removal of taxes on debt investments for foreign investors, relaxation of ownership limits and additional measures to support currency stability have collectively driven strong inflows into Indian sovereign securities.

According to market data, overseas investment in index-eligible Indian government bonds has risen by 322.8 billion rupees (approximately $3.4 billion) since the reforms announced on June 5. While part of the increase reflects the inclusion of additional bonds in the eligible category, fund managers say the policy changes have significantly improved the appeal of India's fixed-income market compared with other emerging economies.

Several global asset managers have responded positively to the reforms. Pictet Asset Management and Neuberger Berman Group have indicated plans to increase their exposure to Indian government debt, while M&G Investments has adopted a more optimistic outlook. Analysts at Deloitte India estimate that the tax exemption could improve returns for foreign investors by 15% to 20%, further enhancing the attractiveness of Indian bonds.

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The reforms were introduced after the rupee came under pressure from rising energy prices and heavy equity market outflows, pushing the currency to record lows. Alongside the tax changes, the Reserve Bank of India announced measures to subsidise hedging costs for non-resident deposits and offshore corporate borrowings. These steps have helped the rupee recover around 2.5% from its recent low of nearly 97 against the US dollar.

Market participants believe the policy changes could also improve India's chances of having its government securities cleared and settled through Euroclear, a move that would simplify access for international investors and deepen participation in the domestic bond market. Investment managers have described India as a relatively high-yielding and lower-volatility alternative to several other emerging markets, particularly at a time when many Asian economies are relying on interest rate hikes to support their currencies.

Despite the positive sentiment, some investors remain cautious due to ongoing geopolitical uncertainties, particularly tensions in the Middle East. Analysts say these risks could temporarily limit fresh allocations but may also create buying opportunities over the coming months. Overall, the latest reforms have strengthened India's position in global fixed-income markets and reinforced efforts to attract long-term foreign capital into the country's sovereign debt market.

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