India is preparing a series of calibrated foreign direct investment reforms rather than relying on any single policy fix, with officials signaling that steady measures across insurance and bond markets will drive capital inflows. The government declared on June 9 that no individual step will solve FDI challenges, emphasizing a phased approach to attract foreign capital .
The Union Budget’s decision to permit 100% FDI in the insurance sector has already generated tangible investor interest. The reform raised the foreign investment cap from 74% to 100% on an automatic route, requiring approval from the Insurance Regulatory and Development Authority of India. Government sources confirmed they are seeing concrete interest around the full liberalization of insurance sector investment .
Parallel reforms are reshaping India’s sovereign bond market to compete globally. On June 5, the government issued the Income-tax (Amendment) Ordinance 2026, exempting foreign institutional investors from capital gains tax and withholding tax on government securities retroactively from April 1, 2026. The Reserve Bank of India expanded the Fully Accessible Route to include 15-, 30-, and 40-year tenor bonds alongside sovereign green bonds, broadening the securities available to international investors .
These measures aim to strengthen India’s candidacy for inclusion in the Bloomberg Global Aggregate Bond Index. Bloomberg Index Services deferred India’s entry in January 2026, citing investor concerns about settlement delays, post-trade tax processes, limited automated trading, and lengthy fund registration timelines. The index provider promised an update by mid-2026, with officials expressing hope that the tax relief will address these structural barriers .
MUFG Research estimates the combined policy package could generate approximately $40 billion in inflows during fiscal year 2026-27. If India secures Bloomberg Index inclusion, inflows could exceed $50 billion. India’s potential weighting of around 1% in the index, tracked by nearly $3 trillion in passive assets, could alone translate into an estimated $25 billion of passive inflows over 10 months .
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