India's government is accelerating efforts to attract foreign investment into its sovereign debt market by introducing the Income Tax (Amendment) Bill, 2026. This bill, slated for the upcoming Monsoon Session of Parliament, aims to fortify the bond market by reducing taxes for global investors and removing ownership caps on certain bonds. This legislative push comes after earlier measures to cut taxes on debt for foreign investors and ease ownership restrictions, which have already seen significant positive impacts.
Foreign buying of Indian bonds has already seen a substantial increase, reaching a record monthly inflow of 418 billion rupees ($4.4 billion) in July. This figure nearly doubled the previous record of 239 billion rupees ($2.87 billion, using an approximate conversion for August 2024 if the rate was similar) set in August 2024. These inflows are specifically directed towards debt under the fully accessible route, which is open to unrestricted global investment.
The policy changes, including the tax cuts, have been effective in drawing global funds. Since the reforms initiated on June 5, overseas flows into index-eligible bonds have risen by 326.3 billion rupees ($3.5 billion). Major asset managers like Pictet Asset Management and Neuberger Berman Group LLC have expressed intentions to increase their exposure to Indian bonds, while M&G Investments has adopted a more positive outlook following these steps. The Reserve Bank of India also recommended these tax reductions, and the Finance Ministry is seriously considering them, partly to stabilize the rupee's depreciation.
These moves are seen as a strategic response to global economic turbulence, including geopolitical instability and disruptions in crude oil prices and supply chains. By making its bond market more appealing to foreign capital, India aims to enhance its economic resilience and foster greater stability. The proposed Income Tax (Amendment) Bill, 2026, is therefore a critical component of a broader strategy to align India's financial policies with global norms and secure increased foreign investment.
