A policy decision of the government has created a flood of foreign money in the Indian market. As soon as the Center made a big announcement of removing capital gains tax on government bonds for Foreign Institutional Investors (FIIs), the bond market suddenly became vibrant. Foreign investors have made a bumper investment of about $ 1.9 billion (about Rs 17,000 crore) in just five trading days of this month. This figure is showing that this month of June is going to be the best in the last 16 months from the point of view of foreign debt investment.
How different are ‘government bonds’ from shares?
Often whenever it comes to investment, the attention of common people goes straight towards the stock market. But, government bonds are quite different from this. This is a type of loan which the government takes from the general public or big institutional investors. Be it the central government or state governments, everyone needs huge funds to complete their big infrastructure projects. To meet this need, bonds are issued in the market. When you or any foreign institution buys this bond, it means that you are lending your money to the government for a fixed period of time. In return, the government pays a fixed interest, which is considered much safer than the risk of fluctuations in the stock market.
Investment drought broken as soon as tax burden was removed
To understand the importance of this huge investment, you will have to look at the figures of the last few months. During the entire financial year 2025-26 (FY26), total debt purchases by foreign investors were limited to just $2.07 billion. Whereas in the first two months of the current financial year (FY27), i.e. April-May, this figure had fallen to only $130 million.
This drought was completely ended by the decision of 6th June. So far this month, FIIs have purchased Indian debt securities worth $1.84 billion. This is the biggest purchase made in a month after March 2025, when investment of about $ 3.69 billion came. In fact, the government has completely removed 12.5 percent tax on long-term, 30 percent tax on short-term along with 20 percent withholding tax on interest for these investors. As soon as this tax thorn was removed, the mouth of foreign treasury opened towards India.
Will benefit from arrival of foreign dollars
According to economists, there is a well-thought-out strategy of the government behind this step. The country’s balance of payments deficit is estimated to reach $60 billion in 2026-27. In such a situation, there could have been a shortage of foreign currency in the market, due to which the value of the rupee would have fallen. The foreign dollars attracted by the government by removing taxes will strengthen the Indian rupee. When the rupee is stable, crude oil and other essential goods coming from abroad become cheaper. Its direct effect comes in the form of controlling inflation in the country.
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