India’s move to exclude foreigners from paying taxes on government bonds and expand access to the debt market is likely to make the country more appealing to foreign investors, catalyze new inflows, and boost its argument for inclusion in global indexes. On Friday, authorities outlined a broad range of policies to attract foreign capital while strengthening the currency and external balances, which have been pressured by rising oil prices.
They eliminated withholding and capital gains taxes on foreign investments in government bonds, expanded the pool of securities available without investment limits, and implemented incentives to encourage banks to accept foreign currency deposits from non-resident Indians and companies to borrow abroad.
The avalanche of measures implemented in reaction to the oil shock that has battered Indian assets is beginning to entice foreign investors back into an underappreciated market amidst rising global interest rate volatility. The rate of foreign inflows has increased since the measures were implemented, with more than $1 billion in government debt purchased in just three sessions. Prior to the statement, $1.6 billion had been spent in the fiscal year to date. Yields on government bonds have declined by 10 to 30 basis points across the curve, with shorter maturities experiencing the largest declines.
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