RBI measures target $40-75bn inflows, support rupee

What changed on June 5

The Reserve Bank of India and the Finance Ministry announced a set of measures on June 5 aimed at attracting foreign capital into India’s debt markets and supporting the rupee. Analysts and bank research desks have tied the package to a potential increase in foreign portfolio participation in government bonds and related channels. The policy approach was framed as a response to external pressures, including heightened global uncertainty linked to the West Asia crisis. Market participants also linked the steps to the need for a steadier foreign exchange environment in the coming quarters. In research notes cited in reports dated June 6 and June 7, estimates for the potential inflow impact ranged from about $15 billion to as high as $15 billion. The measures also arrived alongside the RBI’s decision to keep key interest rates unchanged at its latest policy meeting. The stated intent, as flagged by research commentary, was to reinforce confidence and avoid unnecessary volatility in the foreign exchange market.

SBI’s assessment: at least $10 billion possible

A report by State Bank of India said the cumulative impact of reforms in the bond market, incentives for overseas borrowing, and steps to attract foreign currency deposits could lead to capital inflows exceeding $10 billion. The report positioned these inflows as supportive for the rupee and domestic borrowing conditions. SBI also pointed to tax exemptions for foreign investors as an additional return enhancer that could encourage participation in Indian debt. Separately, SBI indicated that foreign exchange flows of about $10-50 billion could help stabilise the rupee, based on its conversations with bankers. In another reported assessment, SBI suggested that at least $10 billion of capital flows could pull the rupee back toward 92-93 levels. This estimate was presented as an outcome tied to the overall package rather than a single measure. The report also highlighted that the approach is intended to strengthen confidence in the foreign exchange market.

FAR expansion: longer-dated G-secs opened wider

One of the most material steps highlighted in multiple reports is the RBI’s expansion of the Fully Accessible Route (FAR). Newly issued 15-year, 30-year and 40-year government securities were included under FAR, allowing foreign portfolio investors unrestricted access to these instruments. Another report noted the removal of the 30 per cent short-maturity limit, a change that can improve how foreign investors construct bond portfolios across maturities. Market participants see longer duration availability as relevant for global funds that prefer benchmark-like curves. The FAR expansion was also framed as supportive of India’s broader effort to deepen its government securities market. By widening the investible universe, the RBI can potentially attract incremental foreign demand over time. The policy link to index-related demand has also been highlighted in bank research.

Tax exemptions: higher post-tax returns for FPIs

The government announced income tax exemptions for foreign portfolio investors on interest income and capital gains from government securities. Reports said the exemption is effective from April 1 this year. SBI estimated that the tax exemptions could translate into benefits worth between Rs 4,500 crore and Rs 6,000 crore, improving post-tax returns. Another report quantified the uplift as Rs 4,000-5,000 crore plus an additional Rs 500-1,000 crore in post-tax returns. While the reports used slightly different ranges, the common conclusion was that tax relief improves the relative attractiveness of Indian government bonds for overseas investors. The measures were described as intended to broaden the investor base and make the market more accessible. Combined with the FAR expansion, the tax change was also linked to a stronger case for inclusion in global bond indices.

FX swaps, ECB support and FCNR(B): multiple inflow channels

Reports cited a concessional foreign exchange swap window for external commercial borrowings by public sector undertakings as part of the package. The measures also included support for foreign currency non-resident, or FCNR(B), deposits. Bank research suggested these incentives could generate substantial foreign currency inflows and potentially exceed the $14 billion mobilised during the FCNR(B) deposit drive of 2013. In addition, reports pointed to broader access for overseas investors and non-resident Indians, including higher investment limits for NRIs and OCIs in some cases. A separate line item referenced expanded access for overseas individuals beyond just NRIs and OCIs. Taken together, the package was presented as a coordinated attempt to raise foreign currency availability through both portfolio and deposit channels.

Export proceeds rule tightened back to nine months

The RBI also restored the time limit for realisation and repatriation of export proceeds to nine months. This replaced a temporary 15-month window that had been introduced during the pandemic. The move was welcomed in the SBI report as part of steps that can improve foreign exchange management and reduce delays in currency inflows. While the direct inflow quantum from this specific change was not quantified in the reports, the policy intent is to speed up export-related foreign currency receipts. For the central bank, faster repatriation can help reduce episodic pressure on the rupee during periods of global stress. It also signals a shift back toward pre-pandemic operational norms. Market participants typically view such measures as supportive at the margin when paired with broader capital account initiatives.

What economists say about the BoP gap for FY27

Economists quoted in reports linked the measures to India’s projected balance of payments gap for FY27. HDFC Bank principal economist Sakshi Gupta said the combined effect of the steps could bridge a $10 billion-$10 billion BoP gap projected for FY27. That estimate was based on assumptions of a current account deficit of 2.1 per cent of GDP and average crude oil prices of $10 a barrel. YES Bank chief economist Indranil Pan estimated $15 billion-$15 billion as a reasonable range, close to the anticipated BoP gap for FY27. Another report summarised economists’ expectations as $15 billion-$10 billion of potential inflows. These estimates underline that the package is being assessed not only as a bond-market reform, but also as a macro stabilisation tool.

Bond index inclusion: an additional $15 billion cited

ICICI Bank Global Markets said the measures could attract around $10 billion in inflows, reflecting the combined effect of deposit support, swap facilities and broader access for overseas investors. The same theme was echoed in other reports that pegged inflows near $10 billion. Separate reporting linked the FAR expansion and tax concessions to a stronger case for inclusion in Bloomberg’s global bond index. If such inclusion materialises, analysts estimated an additional $15 billion could flow into Indian debt markets. This potential index-related demand is typically viewed as stickier than tactical portfolio flows, although the reports did not attach a timeline. The $15 billion figure was presented as incremental to the base impact of the announced measures.

Key estimates and measures at a glance

Market impact: rupee support and rate-setting flexibility

The core market impact highlighted across reports is the potential for higher foreign currency inflows to support the rupee and improve balance of payments dynamics. SBI’s research commentary tied $10-50 billion of potential FX flows to rupee stabilisation, and another report linked at least $10 billion of inflows to a pullback toward 92-93 levels. Economists also argued that a stronger inflow profile could give the RBI greater flexibility in setting domestic interest rates, because external financing risks would be more contained. The government’s tax exemption directly increases the net yields for foreign investors, which can matter in periods when global rates remain elevated. The FAR expansion increases the investible universe for foreign funds and aligns market design with global fixed-income participation. The export proceeds repatriation change aims to reduce delays in FX receipts, complementing capital inflow measures. Overall, the package is being read as a coordinated attempt to widen inflow sources and reduce pressure points created by external shocks.

Why the package matters for bond markets

The measures combine structural steps, such as FAR expansion, with incentive-oriented steps, such as tax exemptions and swap facilities. Structural access tends to matter for long-term portfolio allocation decisions, especially for funds that benchmark to global indices. Incentives and facilities, including FCNR(B) support and ECB-related swap windows, can matter more in the near term when FX liquidity is needed quickly. By bundling these tools, the RBI and government are trying to influence both duration and stability of inflows. The repeated references to bond index inclusion reflect a longer-term objective to broaden the investor base beyond episodic risk-on flows. At the same time, estimates vary widely across institutions, showing that the final outcome depends on investor response and global conditions. For investors in Indian bonds and rate-sensitive sectors, the key variable is whether the package results in sustained participation rather than a one-off bump.

Conclusion

RBI and government measures announced on June 5 have been framed by bank research and economists as a meaningful attempt to attract foreign capital and steady the rupee. Reported inflow estimates range from about $15 billion to $15 billion, with several notes clustering around $10-50 billion. The package combines FAR expansion for longer-dated G-secs, tax exemptions for FPIs, facilities that can support FCNR(B) deposits and external borrowing, and faster export proceeds repatriation. The next signal for markets will be evidence of actual foreign participation in new FAR-eligible issuances and any follow-through on global bond index inclusion discussions. Until then, the package’s success will be judged by whether inflows materialise in the size and pace outlined in these estimates.