What FAR Is — In One Paragraph

India's G-Sec market has two access lanes for foreign investors. The General Route caps aggregate foreign holdings at 6% of outstanding Central Government securities — once the quota fills, no more foreign money enters regardless of demand. 

The Fully Accessible Route (FAR) works differently: bonds designated as 'specified securities' under FAR carry no investment cap. A foreign investor — global asset manager, sovereign wealth fund, index-tracking fund — can buy as much as they want, alongside domestic investors, with zero ceiling. RBI introduced FAR in March 2020 and has progressively widened its perimeter. On June 5, 2026, it expanded FAR to include all new issuances of 15-, 30- and 40-year G-Secs — the most significant widening since the route's inception. 

• INR 3.24T FAR securities held by FPIs as of June 2026
• 6.8% Utilisation of available FAR room vast headroom remains

Impact on Yields: Long-End Compression

The bond market mechanics are direct. Adding 15-, 30- and 40-year G-Secs to FAR means global investors — previously capped or excluded from these tenors — can now freely accumulate long-dated Indian sovereign paper. More buyers entering a fixed supply means prices rise and yields fall. 

The starting point is already attractive. India's 10-year G-Sec yields ~6.8–7%, against US Treasuries at ~4% for equivalent duration. That is a 270–300bps spread for investment-grade sovereign debt — exceptional by global standards. Foreign investors who have been constrained by caps now have unrestricted access to a higher-yielding, freely tradeable bond market.

The net directional effect: a bull-flattening of the long end. The 30- and 40-year segment — currently thin and illiquid — should see the most pronounced compression as foreign duration buyers enter a market with genuinely limited domestic competition at those tenors. 

Impact on Government Issuances

India's Union Budget FY27 involves a large sovereign borrowing programme. A material portion of that issuance is deliberately long-tenor — 15-, 30- and 40-year bonds — structured to match the duration of infrastructure spending commitments and reduce rollover risk.

Borrowing Cost Arithmetic

If foreign demand compresses the yield at which the government raises this INR 1.5 trillion, the savings are recurring and compound over the bond's life. A simple illustration:

Beyond cost, FAR expansion improves the government's issuance optionality. When 30- and 40-year bonds are illiquid, the government sometimes faces weak auctions — undersubscription or high devolvement on primary dealers. A deeper, more internationally accessible long-end market means more reliable auction outcomes, reducing the government's dependence on domestic institutions to mop up supply at sub-optimal pricing.  

Broader Economic Implications

I. External Balance & Rupee

Foreign buying of FAR G-Secs generates dollar inflows. Debt inflows into government bonds are structurally stickier than equity FPI — driven by index mandates and duration allocation decisions rather than short-term sentiment. Each dollar of FAR bond purchase is a dollar of rupee demand, directly supporting India's external account at a time when equity FPIs have pulled out INR 2.2 lakh crore in 2026. 

Ii. The Macro Reinforcing Loop

• The transmission chain, if inflows are sustained: 
• Foreign inflows → Hard currency enters India, rupee is bid
• Rupee stability → Lower imported inflation, particularly oil and commodities
• Lower inflation → More room for RBI to hold or cut rates without currency concern
• Rate signals → With a more liquid, internationally active long end, monetary transmission improves
• Further yield compression → Government borrowing costs decline further; private investment crowding-in

Liquidity Deepening

FAR bonds trade freely across domestic and foreign participants with no ownership ceiling. As foreign investors accumulate the 30- and 40-year segment, secondary market turnover in these tenors rises. This reduces bid-offer spreads, lowers transaction costs, and makes long-duration bonds a more viable asset class for a broader range of domestic institutional investors — pension funds, insurance companies — who need long-duration assets to match liabilities but have historically faced thin, expensive markets at the long end. 

Index Inclusion Weight

India's weight in JPMorgan's GBI-EM, Bloomberg EM Local Currency Government Index, and FTSE EMGBI is determined partly by the stock of freely accessible, FAR-eligible bonds. Expanding FAR eligibility grows the investable universe, mechanically increasing the passive flow from index-tracking mandates as re-weightings occur — creating a structural, ongoing demand for Indian sovereign paper that is unaffected by near-term market sentiment. 

Summary

FAR expansion is the RBI using market structure reform — not rate cuts — to compress long-end yields, reduce the government's borrowing cost on INR 1.5 trillion of upcoming issuances, and attract stable hard-currency inflows. The mechanism runs from increased foreign demand at the 15/30/40-year tenors, through yield compression and improved auction liquidity, to rupee support and better monetary transmission. It is a single policy action with compounding effects across yield curve shape, fiscal arithmetic, and India's external balance.

Source: SBI Research Paper