India foreign inflows: RBI swap, PROI limits in 2026

Why foreign capital is back in focus

Finance Minister Nirmala Sitharaman said the government is taking a calibrated approach to attract more foreign capital and may add measures if higher inflows are required. She linked the push to supporting investment flows into domestic markets while maintaining financial stability. The comments came as policymakers look to strengthen external finances and keep India attractive amid volatile global capital flows and uncertainty. Sitharaman’s remarks also placed the Reserve Bank of India (RBI) at the centre of the near-term effort, particularly through a framework that lowers hedging costs for certain overseas fundraising. Alongside the RBI’s steps, the Finance Ministry has announced rule changes for foreign investment in equities and government securities. Several reforms are effective from April 1, 2026, indicating a coordinated policy timeline.

Sitharaman’s Mindmine Summit 2026 remarks

Speaking at the Mindmine Summit 2026, Sitharaman said India needs more foreign capital. She pointed to a framework where the RBI has allowed public sector undertakings and banks to raise money from outside India, while making hedging a key part of the design. The finance minister said participating entities would not have to bear the cost of hedging against exchange-rate volatility. She described the relief as covering currency-related risk, volatility, and exchange-rate risk. In her framing, that would allow banks to raise capital from international markets with fewer constraints created by hedging costs.

RBI’s forex swap facility for FCNR(B) deposits

To attract more foreign capital, the RBI has introduced a forex swap facility intended to encourage banks to raise FCNR(B) deposit rates. Under the facility, the RBI will absorb the full hedging cost for banks on deposits with maturities of three to five years. The facility also exempts fresh deposits from reserve requirements, as described in the provided information. Following the move, banks have raised FCNR(B) deposit rates.

This mechanism matters because FCNR(B) deposits are foreign currency deposits and hedging is a direct cost when banks manage currency exposure. By shifting the hedging cost to the RBI for eligible maturities, the policy aims to reduce the cost hurdle and support incremental foreign currency inflows through banks. Sitharaman described these measures as part of a broader strategy to keep investment flows adequate without compromising stability.

Concessional withholding tax and the possibility of more steps

Sitharaman also highlighted the concessional withholding tax regime as a measure aimed at attracting overseas investors. She said the withholding tax treatment would be a first step towards drawing capital back, while indicating more measures could be considered. She added that this would not be the end of the story, signalling openness to further policy action depending on inflow conditions.

Equity reforms: higher limits for individual PROI investors

In a separate set of measures, the Finance Ministry said it has taken steps to broaden and simplify foreign investment in Indian equities and government securities to attract stable long-term foreign capital flows. In the Union Budget FY 2026-27, Sitharaman announced that individual Persons Resident Outside India (PROI) will be permitted to invest in equity instruments of listed Indian companies through the Portfolio Investment Scheme, a route previously limited to NRIs and OCIs.

The Finance Ministry statement said the investment limit will be increased for an individual PROI from 5% to 10% in any company. It also raised the overall investment limit for all individual PROIs to 24% from the current 10%. To implement the change, the Department of Economic Affairs is notifying the Foreign Exchange Management (Non-Debt Instruments) (Third Amendment) Rules, 2026.

Government securities: deeper access through FAR and fewer route restrictions

The government also aims to deepen foreign portfolio investor (FPI) participation in government securities. It plans to expand the Fully Accessible Route (FAR) to include new issuances in tenors of 15, 30 and 40 years and Sovereign Green Bonds in the tenors of FAR-eligible securities.

For FPI investments under the General Route, it will remove three restrictions: the short-term investment limit, concentration limit, and security-wise limit for investments by FPIs in government securities. The overall quantitative investment limit will remain 6% of the outstanding stock of Central Government securities and 2% of State Government securities (SGSs), as stated. The ministry said these steps are intended to support development of a smooth yield curve and attract stable, long-term foreign capital such as pension funds, insurance companies, and sovereign wealth funds.

Tax changes for FPIs in government securities from April 1, 2026

The Finance Ministry said interest and capital gains on investments by FPIs in government securities will be exempt from income tax, effective April 1, 2026. The timing aligns with other rule changes described as effective from April 1, 2026. Taken together, the measures attempt to combine route simplification with tax treatment that is explicitly positioned as supportive of stable inflows.

Budget 2026 measures tied to foreign investment and non-residents

The provided information also lists additional Budget 2026 measures aimed at simplifying regulations, providing tax incentives, and easing compliance for non-resident investors. These include immunity from prosecution under the Black Money (Undisclosed Foreign Income and Assets) Act for non-immovable foreign assets below ₹20 lakh, with retrospective effect from October 1, 2024. The Budget also announced a comprehensive review of the Foreign Exchange Management (Non-debt Instruments) Rules to make them more contemporary and user-friendly.

On sector-specific incentives, the Budget offers a tax holiday until 2047 for foreign companies that provide cloud services globally using Indian data centres, with services sold to Indian customers routed through local reseller entities and taxed appropriately. It also provides a safe harbour of 15% on costs when the data centre is owned by a related Indian company. For toll manufacturing, foreign firms providing capital goods, equipment, or tooling to toll manufacturers operating in bonded zones will be exempt from income tax for five years starting April 1, 2026. Safe harbour provisions also allow non-residents to earn a profit margin of 2% on component warehousing in bonded warehouses, resulting in an effective tax rate of 0.7%, as stated.

What the package means for markets and the rupee narrative

The combined set of actions spans bank-linked foreign currency deposits, portfolio equity limits, government bond access, and tax treatment. The RBI’s swap facility directly targets the cost mechanics of hedging for FCNR(B) deposits of three to five years and removes reserve requirements for fresh deposits under the facility. The equity and bond reforms attempt to widen the investor base by allowing individual PROIs a larger stake under the Portfolio Investment Scheme and by widening FAR-eligible issuance tenors.

Separately, the provided information notes that India is likely to announce measures within a week to attract foreign capital inflows to support the rupee, according to a Financial Express report, with proposals under discussion including a reduction in long-term capital gains tax and a cut in withholding tax on bonds held by foreign investors. It also mentions a set of “3 big moves” being planned, including LTCG tax relief on shares and bonds, lower withholding tax on government bonds, and halving the Liberalised Remittance Scheme (LRS) limit from $150,000. These items are described as plans or proposals in media reporting and are not presented as confirmed policy in the provided text.

Key measures at a glance

Limits and caps mentioned in the announcements

Conclusion

India’s current push to attract foreign capital is being executed through multiple channels: an RBI swap-based framework for FCNR(B) deposits, higher equity access for individual PROIs, broader government bond eligibility through FAR, and tax changes for FPIs in government securities from April 1, 2026. Sitharaman has positioned these steps as calibrated and linked to financial stability, while leaving room for additional measures if inflows need further support. The next set of confirmed milestones in the provided information is tied to the April 1, 2026 effective date for several reforms, alongside any subsequent announcements the government chooses to make.