India Ratings and Research (Ind-Ra) estimates that new measures by the Reserve Bank of India (RBI) and the government could attract USD 60-70 billion in foreign capital. These steps aim to support the Indian rupee and increase foreign investor participation in government securities.
These policy actions are crucial for India's economic stability, aiming to bolster foreign exchange reserves, support the rupee's value against the dollar, and attract significant foreign investment into the country's debt markets, which could lead to lower borrowing costs and improved global financial integration.
The Reserve Bank of India (RBI) and the Indian government have introduced a series of coordinated measures aimed at attracting foreign capital and stabilizing the rupee. India Ratings and Research (Ind-Ra) estimates these steps could bring in USD 60-70 billion, providing a significant buffer for the rupee and easing financial system funding pressures.
The RBI's initiatives include a forex swap facility for Foreign Currency Non-Resident (Bank) (FCNR (B) deposits with maturities between 3-5 years, available until September 30. This facility allows banks to swap US dollar deposits with the regulator, managing currency risks and potentially offering better returns to overseas depositors as the RBI bears hedging costs. Additionally, a concessional forex swap facility is available for Public Sector Undertakings (PSUs) to raise External Commercial Borrowings (ECBs) until the same date.
Ind-Ra projects that these measures will lead to a substantial inflow of foreign capital, potentially strengthening the rupee from its current levels towards Rs 90/USD, with an average forecast of Rs 93.10 for FY27. The currency's movement will be influenced by inflation, interest rates, and capital flows.
Concurrently, the government has implemented reforms to enhance Foreign Portfolio Investor (FPI) participation in government securities (G-Secs). These include tax exemptions on interest income, long-term capital gains (LTCG), and short-term capital gains (STCG), alongside an expansion of securities under the Fully Accessible Route (FAR) and streamlined investment norms. The government anticipates these changes will facilitate the inclusion of G-Secs in the Bloomberg Global Aggregate Bond Index, thereby deepening the bond market and attracting passive fund inflows.
While these coordinated policies are expected to provide interim relief and strengthen India's external financing position, Ind-Ra notes that risks remain due to a tightening global environment, weak exports, and oil price volatility stemming from the West Asia conflict. The effectiveness of these measures in achieving sustained external stability will depend on global interest rates and oil price trajectories.