Fully Accessible Route (FAR)

The Fully Accessible Route (FAR) is a significant policy initiative in India’s government securities market that allows unrestricted participation by foreign investors in specified categories of Indian government bonds. Introduced as part of India’s gradual capital market liberalisation, FAR has important implications for banking, finance, and the Indian economy by enhancing market depth, improving capital inflows, and strengthening India’s integration with global financial markets.

Meaning and Concept of the Fully Accessible Route

The Fully Accessible Route refers to a framework under which certain government securities are made fully accessible to non-resident investors without being subject to quantitative limits. Under FAR, eligible bonds can be freely purchased and sold by foreign portfolio investors and other non-residents, similar to domestic investors.
This mechanism represents a departure from earlier regimes where foreign investment in government securities was capped and tightly regulated. FAR is designed to simplify access, improve liquidity, and align India’s bond market with global standards.

Background and Rationale for FAR

Historically, foreign investment in Indian government securities was restricted through investment limits to manage capital flow volatility and protect macroeconomic stability. While these controls ensured stability, they also constrained market depth and global participation.
With stronger macroeconomic fundamentals, improved monetary policy credibility, and higher foreign exchange reserves, India moved towards calibrated liberalisation. The introduction of FAR reflected confidence in the resilience of the Indian financial system and aimed to attract stable long-term foreign capital.

Regulatory Framework and Institutional Oversight

The Fully Accessible Route is implemented and overseen by the Reserve Bank of India in coordination with the Government of India. Bonds designated under FAR are notified periodically and are exempt from foreign investment ceilings.
The framework operates within the broader legal structure of the Foreign Exchange Management Act and capital market regulations, ensuring transparency, prudence, and regulatory consistency.

Eligible Instruments under FAR

Under the Fully Accessible Route, specific Indian government securities are identified as eligible for unrestricted foreign investment. These typically include:

• Central government dated securities with specified maturities
• Securities issued after a notified cut-off date
• Bonds aligned with global settlement and trading practices

State development loans are generally excluded, reflecting a phased and cautious approach to liberalisation.

Impact on the Government Securities Market

FAR has contributed to increased liquidity and depth in the Indian government bond market. Unrestricted foreign participation enhances trading volumes, improves price discovery, and reduces market segmentation.
Greater liquidity also supports the development of related markets such as interest rate derivatives and repo markets, strengthening the overall financial market infrastructure.

Implications for Banking and Financial Institutions

For banks, FAR improves the efficiency of the government securities market, which is central to banking operations, liquidity management, and statutory investment requirements. Deeper markets facilitate better valuation, lower transaction costs, and more effective risk management.
Banks also benefit indirectly as increased foreign participation can reduce government borrowing costs, influencing interest rate benchmarks and lending conditions across the economy.

Role in Attracting Foreign Capital

The Fully Accessible Route enhances India’s appeal to global fixed-income investors, including sovereign wealth funds, pension funds, and global bond indices. Inclusion of FAR-eligible bonds in global indices increases passive investment inflows and provides a stable source of foreign capital.
These inflows support financing of fiscal deficits, infrastructure spending, and public investment without excessive reliance on domestic savings.

Impact on the Indian Economy

At the macroeconomic level, FAR supports efficient capital allocation and strengthens India’s external financing capacity. Increased foreign investment in government securities can help moderate borrowing costs and improve fiscal sustainability.
FAR also signals India’s commitment to financial market reforms, enhancing investor confidence and reinforcing its position as a major emerging market economy.

Exchange Rate and Monetary Policy Considerations

While FAR encourages capital inflows, it also raises considerations related to exchange rate volatility and monetary policy transmission. Large foreign inflows into bond markets can influence currency movements and domestic liquidity.
The RBI manages these effects through calibrated intervention, liquidity management tools, and macroprudential measures, ensuring that openness does not compromise stability.

Risks and Challenges Associated with FAR

Despite its benefits, FAR introduces certain risks. Increased foreign participation can expose the bond market to global interest rate cycles and risk sentiment shifts. Sudden reversals of capital flows may affect yields and market stability.
Concentration of foreign holdings in specific maturities can also amplify volatility. These risks underline the importance of strong macroeconomic fundamentals and active market surveillance.

Comparison with Global Practices

Globally, many advanced and emerging economies allow unrestricted foreign access to sovereign bond markets. FAR aligns India with these practices while retaining flexibility through selective eligibility and phased expansion.
International institutions recognise gradual liberalisation, supported by robust regulation, as a sustainable approach for emerging markets.