In a sweeping and coordinated response to the mounting pressure on the rupee, the Centre and the Reserve Bank of India on Friday unveiled a package of measures designed to attract dollar inflows, arrest the currency’s slide and finance a current account deficit that could nearly double to 2% of GDP this fiscal year if crude oil prices remain elevated around $95 per barrel.
RBI Governor Sanjay Malhotra left little doubt about the central bank’s resolve. “We shall remain vigilant, and we are fully prepared to do whatever it takes to preserve orderly market conditions,” he told reporters. He also ruled out any restrictions on capital outflows, saying no such measures were under consideration.
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The backdrop is stark. Since the outbreak of the Iran war on February 28, foreign portfolio investors have pulled out $26.6 billion from Indian equities and another $836 million from bond markets. The rupee has weakened by 397 paise — or 4.36% — over the same period, touching a record low, while the Sensex has shed 8.36%. The RBI kept its benchmark repurchase rate unchanged at 5.25%, choosing to hold its powder dry on rates even as it revised its inflation forecast upward to 5.1% for FY27, from 4.6% earlier, and trimmed its growth outlook to 6.6% from 6.9%.
Radical Tax Breaks
The government’s centrepiece announcement was a significant tax concession for foreign portfolio investors: capital gains and interest income earned on government securities will now be fully exempt, with the relief applying retrospectively from April 1, 2026. Previously, FPIs faced a 30% short-term capital gains tax, a 12.5% long-term capital gains tax and a 20% tax on interest income — a persistent deterrent even after India secured inclusion in major global bond indices including JP Morgan’s Emerging Market Bond Index and the Bloomberg Emerging Market Local Currency Index. The government also expanded the universe of bonds eligible under the Fully Accessible Route to include 15-, 30- and 40-year government securities and Sovereign Green Bonds.
On the capital flows front, investment limits for non-resident Indians, overseas citizens of India and other foreign residents have been substantially widened. The individual investment cap in a listed company has been raised from 5% to 10%, while the aggregate limit for all such investors has been lifted from 10% to 24%.
The RBI complemented these steps with concessional forex swap facilities to encourage external commercial borrowings by public sector banks and to mobilise 3-5 year FCNR(B) deposits. Exporters have been granted an additional nine months for the realisation of export proceeds.
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Market Reactions
Market participants estimate the combined package could attract $50–60 billion in inflows over time. “The government and the RBI have provided what the market needed,” said Gaura Sengupta, chief economist at IDFC First Bank. “The measures are expected to bring at least $50 billion by March. The RBI will fully fund FCNR hedging and subsidise ECB hedging, which should be the main routes for attracting capital.”
The moves also drew immediate comparisons to India’s response to the 2013 taper tantrum — the last time the rupee came under comparable siege. Sonal Varma, economist at Nomura Holdings, called it a “bazooka announcement” that would meaningfully boost the country’s balance of payments. Crucially, she told Bloomberg, “the RBI has rightly chosen to not use policy rates to defend the currency” — opting instead for targeted non-monetary measures that avoid choking domestic growth.
Not everyone is fully convinced the package will close the gap. Mitul Kotecha of Barclays estimated the measures could generate around $5 billion a month in incremental inflows — against India’s requirement of $7–8 billion a month to balance its external accounts. Nilesh Shah, managing director of Kotak Mutual Fund, welcomed the coordinated action but pointed to unfinished business: “The next logical step would be to facilitate bond index inclusion through greater integration of clearing systems, registration processes and payment mechanisms.”
For now, the signal from New Delhi and Mint Street is unambiguous: India will defend its currency — and it has the tools, the reserves and the will to do so.
TOPICSFalling Rupee ValuerupeeRupee vs us dollarThis article was first uploaded on June five, twenty twenty-six, at fifty-four minutes past seven in the evening. © The Indian Express (P) Ltd