Context: Recent measures by the Government of India and the Reserve Bank of India (RBI), including easing investment norms under the Fully Accessible Route (FAR), have led to a sharp rise in Foreign Portfolio Investment (FPI) into Indian Government Securities (G-Secs). The inflows reflect growing global confidence in India’s sovereign debt market.
Explanation:
- Government Securities (G-Secs) are sovereign debt instruments issued by the Central Government to finance fiscal deficits and are considered virtually risk-free.
- Foreign Portfolio Investment (FPI) refers to overseas investment in financial assets such as shares and bonds without acquiring management control.
- The Fully Accessible Route (FAR), introduced by the RBI in 2020, allows eligible FPIs to invest in specified Government Securities without any investment ceiling or quota.
- FAR bonds have been included in major global bond indices (e.g., J.P. Morgan GBI-EM, Bloomberg Global Aggregate Index, FTSE Russell EMGBI), increasing passive foreign investment.
- Higher FPI inflows increase demand for the Indian Rupee, support foreign exchange reserves, deepen capital markets and improve overall market liquidity.
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