Societe Generale reports that the Government of India and the Reserve Bank of India (RBI) are focusing on attracting capital inflows to support the Indian Rupee (INR), rather than resorting to policy tightening measures [1]. The authorities have introduced a series of initiatives, including the removal of withholding tax for Foreign Portfolio Investors (FPIs) on government securities (G-sec) income, expansion of the Fully Accessible Route (FAR), and easing of investment limits, all aimed at deepening bond market inflows [1].
Additionally, banks have been incentivized to raise Foreign Currency Non-Resident (Bank) [FCNR(B)] deposits by offering attractive interest rates in the range of 6–7% or higher, with the RBI absorbing the associated hedging costs [1]. A concessional European Central Bank (ECB) swap window has also been introduced, which is reviving offshore borrowing and further supporting efforts to engineer dollar inflows and stabilize the INR [1].
On the fiscal front, the Government of India is demonstrating flexibility by expressing willingness to allow the fiscal deficit to widen to as much as 4.8% of GDP, compared to its earlier target of 4.3%, in response to the ongoing war [1]. This shift underscores a broader policy stance that prioritizes foreign exchange stability and capital inflows over immediate fiscal consolidation [1].
CONCLUSION
India is actively implementing measures to attract foreign capital and stabilize the rupee, including tax relief for investors and incentives for foreign currency deposits. The government's openness to a wider fiscal deficit signals a pragmatic approach to managing external shocks. These steps are expected to support FX stability and bond market inflows in the near term.