Inclusion of Government Securities under Fully Accessible Route (FAR)
The recent inclusion of certain government securities under the Fully Accessible Route (FAR) and the provision of tax exemptions by the government aim to enhance the appeal of Indian debt to foreign investors in the long term.
Market Reactions and Expert Opinions
- Despite these measures, immediate foreign inflows remain uncertain due to:
- Elevated crude oil prices
- The ongoing conflict in West Asia
- Alok Singh, the head of treasury at CSB Bank, highlights the unpredictability of bond inflows, noting that:
- Inflows depend on overall geopolitical sentiment.
- Large-scale inflows are not expected soon, except possibly in deposit schemes.
RBI's Actions to Boost FPI Inflows
The Reserve Bank of India (RBI) has included securities of three additional tenures—15-, 30-, and 40-year papers—in the FAR securities to increase Foreign Portfolio Investment (FPI) inflows.
- New issuances added to the FAR basket include:
- 6.68% GS 2040
- 7.24% GS 2055
- 7.71% GS 2066
Impact on Government Securities Yield
Post-announcement, the 10-year Government Security (G-sec) yield initially rallied by seven basis points to 6.94%, indicating positive market reactions. However, it later reversed, closing at 6.97%, slightly lower than the previous close of 7.01%, as per CCIL data.
