The Reserve Bank of India on Friday unveiled a series of measures aimed at attracting more foreign capital into the country, as policymakers seek to strengthen external finances amid global uncertainty and pressure on the rupee.
The steps, announced by Governor Sanjay Malhotra after the monetary policy decision, include wider access for foreign investors to government bonds, easier investment rules for overseas Indians and foreign residents, and incentives for companies and banks to raise funds from abroad.
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“All these measures together should help attract foreign capital for government borrowing,” Malhotra said.
As part of the package, the RBI expanded the range of government bonds that foreign investors can buy without investment restrictions by including all new issuances of 15-year, 30-year and 40-year securities under the fully accessible route. The central bank also removed certain investment limits related to short-term holdings and concentration in individual securities.
The move comes after the government earlier on Friday announced tax benefits for investments in government securities, adding to efforts to make Indian debt more attractive to global investors.
The measures come at a time when the rupee has come under pressure from a combination of higher oil prices, foreign capital outflows and heightened global risk aversion triggered by the conflict in the Middle East.
India, the world’s third-largest oil importer, is particularly vulnerable to sustained increases in crude prices. Higher oil import costs increase demand for dollars from refiners and widen the country’s trade deficit, typically weighing on the rupee. Benchmark crude prices have risen sharply since the outbreak of the U.S.-Israeli conflict with Iran, raising concerns about imported inflation and the impact on India’s external balances.
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At the same time, investors have shifted money into traditional safe-haven assets amid geopolitical uncertainty, leading to outflows from emerging markets including India.
The resulting pressure on the currency has prompted the RBI to intervene in the foreign-exchange market to smooth volatility. By attracting additional foreign investment into government bonds, equities and overseas funding channels, policymakers hope to increase the supply of foreign currency and help cushion the rupee
Furthermore, the RBI on Friday also raised the limits for investments by non-resident Indians (NRIs) and overseas citizens of India (OCIs) in listed Indian equities without requiring registration with market regulator SEBI. The same facility has now been extended to all individual investors residing outside India.
To encourage overseas borrowing, the central bank said it would offer a concessional foreign-exchange swap facility until September 30 for external commercial borrowings raised by public sector companies. A similar facility will be available to banks raising foreign currency non-resident deposits, with the RBI bearing the full hedging cost.
The central bank also restored the deadline for exporters to bring export earnings back into the country to nine months from the temporary 15-month window that had been introduced earlier.
Malhotra said the measures were expected to strengthen India’s balance of payments and support capital inflows.
“We will continue to make the right policy adjustments as may be required to further promote exports and attract and incentivize capital inflows,” he said.
Reiterating the RBI’s stance on the currency, Malhotra said the central bank did not target any specific exchange rate level.
“We do not target any specific level or band. Instead, we allow the exchange rate to be determined by market forces,” he said.
However, he added that the RBI would continue to act against excessive volatility driven by speculation and uncertainty.
