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The Finance Minister, Mrs. Nirmala Sitharaman, with the announcement of the Union Budget on 01 February 2020, brought out various benefits for Non Residents to Invest in India. This is to boost the amount of foreign direct investment in the country. One of the benefits for Non-residents is for investing in Government Securities.
Government securities are issued by the government, which is generally considered as a bond or some form of obligation which is related to the debt. These securities have to be paid back at the end of the maturity period. These securities are considered as low-risk investments.
The Reserve Bank of India, in a notification, decided to keep access to government securities open to foreign investors. Apart from boosting the amount of foreign investment in the country, the government wanted its place in the global bond indices. In the announcement made by the finance minister, the government securities would be available to foreign investors through the Fully Accessible Route (FAR).
Fully Accessible route is the mode of investment that is made by Non Residents in Government securities. The fully accessible route is something like a separate channel for investments made by Non-residents. This is specially made for Government Securities. These securities are also known as G-Secs. Specified securities are securities that are issued by the government. There is a process of special notification for this form of securities. This is carried out by the RBI. These securities are for the FAR route as prescribed by the government.
The above parties can make their investment through the debt obligations through specific existing routes.
The issuance of Government Securities, which have the
following period (tenor) – 5 Years, ten years, and 30 years, will be allowed for investment as a specified security under the
fully accessible route (FAR), as mentioned by the Reserve Bank of India. There
are specific existing securities which are present under this Fully Accessible
Therefore apart from the above securities, the Reserve Bank of India would consider specified securities where investment by non-residents would be allowed. This move was considered as Indian Government bonds would become a part of the global bond indices. However, this would only be after fulfilling certain conditions to be a part of the global bond indices. At present, the top global bond indices include Bloomberg Barclays Global Aggregate Index, FTSE Russel Asia Pacific Government Bond Index, and JPMorgan Government Bond Index-Emerging Markets.
In the Union Budget, the finance minister had brought out sweeping changes regarding certain benefits which could be availed by Non Residents. Access of government securities is allowed to Non Residents under this route. The investment in the government securities should be only through a specified route, the Fully Accessible Route (FAR). This route is available for domestic investors as well. This requirement was brought out so that Government securities could be a part of the Global Bond Indices. By bringing out such a route, the government has improved the amount of foreign investment that comes into India.
Official notification regarding this can be accessed from the below link:
PDF Source: RBI Notification
Also, Read: NRI Investment in Private Limited Company.
Varun Hariharan has completed the Legal Practice Course from BPP Law School, Manchester. He has a Masters in Commercial and Corporate Law from the Queen Mary University of London and LLB Honours from Bangor University, UK. He specialises in law related to corporate, artificial intelligence and technology law.
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