Foreign portfolio investment (FPI) debt inflows accounted for 62 per cent of cumulative equity inflows into India since fiscal 1998-99, indicating the growing importance of the country’s debt market in attracting foreign capital, according to a report by DSP Mutual Fund.
India has received $95.5 billion in FDI debt inflows in about 28 years, compared to $154.4 billion in equity inflows. Debt flows gained momentum after India’s inclusion in global bond indices and introduction of full access route (FAR) for government securities, the report said. Since FY25, India has received about $19.3 billion in FDI debt inflows, of which $11.8 billion came through the FAR route. The DSP Mutual Fund said India is well placed to attract more debt inflows, with real government securities yields currently above 2 per cent and the country’s broad real effective exchange rate (REER) below 90. Foreign investors have historically preferred markets that offer positive real yields, stable currency outlook and easy market access, the report added.DSP Mutual Fund also said that “eliminating capital gains tax could further improve access – making FAR a near-open and tax-efficient window for global investors.”
At a time of weak equity FDI and FDI outflows, debt inflows can help plug the current account deficit and reduce rupee pressure. According to the report, debt inflows could also help support India’s external sector at a time when equity FDI inflows remain weak and FDI outflows are putting pressure on the capital account. It said debt inflows could help plug the current account deficit and reduce pressure on the rupee.
