RBI measures target $50bn inflows to bridge FY27 BoP

Why India moved now

India’s central bank and the central government announced a set of policy steps on Friday aimed at attracting foreign capital inflows at a time of heightened global uncertainty linked to the ongoing West Asia conflict. Policymakers and market participants have flagged that sustained volatility in energy prices and global risk sentiment can pressure external accounts. The measures are designed to support dollar inflows and strengthen India’s balance of payments (BoP) position for 2026-27.

Economists quoted in the report said the combined package could attract up to $10 billion of inflows, potentially covering most of India’s projected BoP gap in FY27. The numbers vary by estimate, but the intent is consistent: make Indian government securities more accessible for foreign investors, reduce frictions for overseas participation, and incentivise specific inflow channels such as external commercial borrowings (ECBs) and FCNR(B) deposits.

Government’s tax relief for FPIs in G-secs

A key piece of the package came from the central government, which exempted foreign portfolio investors (FPIs) from income tax on interest income and capital gains from government securities (G-secs). The change is effective retrospectively from April 1 this year.

The stated objective is to deepen the government securities market and attract foreign capital. In the context of higher global rates and shifting risk appetite, tax friction can materially affect net returns for global fixed income investors. By removing this cost, the government is signalling that it wants foreign participation to increase, particularly as India continues to expand market access under the Fully Accessible Route (FAR).

RBI’s five-point plan: the headline measures

RBI Governor Sanjay Malhotra announced five measures to attract foreign capital inflows. These include expanding FAR securities, easing investment norms for overseas individuals, and providing forex facilities linked to ECBs and FCNR(B) deposits. The RBI also proposed tightening timelines on export proceeds realisation.

The package blends structural access measures with time-bound incentives. Some steps expand the eligible investible universe and relax limits, while others provide concessional swap or hedging support until September 30, 2026.

1) FAR expansion to longer-tenor government bonds

The RBI expanded the universe of government securities eligible under FAR by including all new issuances of 15-year, 30-year and 40-year tenor G-secs during 2026. Previously, FAR eligibility was largely limited to government securities up to the 10-year tenor.

In addition, the RBI removed limits relating to short-term investment, concentration and individual securities applicable to foreign investments under the general route. The Governor linked this change to the government’s tax measures, noting that together they are expected to enhance foreign participation in government borrowing.

2) Higher equity investment limits for overseas individuals

The RBI increased investment limits for Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs) in listed equity instruments without requiring SEBI registration. The same facility will also be extended to all individual persons resident outside India, putting them on par with NRIs and OCIs for this route.

This is a notable access change because it broadens the set of individual overseas investors who can participate in listed equities without the procedural step of SEBI registration, within the prescribed limits. While the measure does not quantify immediate flows, it reduces friction for incremental participation.

3) Concessional forex swap for PSU ECBs

The RBI announced a concessional forex swap facility to incentivise external commercial borrowings by public sector undertakings. The facility will be available until September 30, 2026.

Market participants cited in the report discussed ECB inflows as part of the overall $10 billion potential impact. However, economists and corporates also said it is too early to assess how much money will be raised through ECB offerings, even if the timing is viewed as supportive.

4) Full hedging cost support for 3-5 year FCNR(B) deposits

For banks raising fresh 3-5 year Foreign Currency Non-Resident (Bank), or FCNR(B), deposits, the RBI will provide a facility under which it will bear the full hedging cost until September 30, 2026. The report also noted that banks will be exempt from statutory fund requirements for these deposits.

In commentary included in the report, FCNR(B) was described as one of the larger potential channels for near-term inflows. One segment referenced that the package could involve roughly $15 billion from FCNR(B) and $15 billion from ECBs, while also noting that the broader impact could include confidence effects.

5) Export proceeds timeline proposed to revert to nine months

The RBI proposed restoring the export proceeds realisation period to nine months. The report described the current period as 14 months, while the Governor’s remarks referenced an earlier extension to 15 months.

A shorter realisation window can support foreign exchange inflows by speeding up the conversion of export receivables. The proposal fits into the broader aim of strengthening the BoP alongside the capital inflow measures.

What economists said about FY27 BoP needs

Sakshi Gupta, principal economist at HDFC Bank, said the combined impact could help bridge a $10-50 billion BoP gap estimated for FY27. This estimate was based on assumptions including a current account deficit of 2.1% of GDP and average crude oil prices of $10 per barrel.

Indranil Pan, chief economist at YES Bank, said $15-45 billion may be a reasonable estimate of inflows, almost enough to close the anticipated BoP gap for FY27. Separate commentary in the report said some forecasts expect $10-50 billion of inflows, and one view suggested the measures could draw a minimum of $10 billion over the next four months, with upside if banks leverage FCNR flows well.

Key measures and timelines at a glance

Market impact: what changes for bonds, flows, and participation

For the government bond market, the package combines tax relief with a broader FAR eligible set and fewer investment constraints under the general route. That mix directly targets foreign demand for G-secs by improving post-tax returns and expanding investible long-tenor supply.

For banks, the FCNR(B) window lowers the cost of mobilising foreign currency deposits by shifting hedging costs to the RBI for eligible tenors. This can influence the pricing banks offer for FCNR(B) deposits, and the report referenced discussion that attractive rates could be offered given the hedging support.

For corporates and public sector borrowers, the concessional swap facility aims to make external borrowing more viable within a defined window. Alongside these steps, the broader effort to strengthen the BoP includes the proposal to speed up export proceeds realisation.

Why the package matters for FY27

The measures are framed as an attempt to cover a projected BoP gap of about $10-50 billion in FY27, with multiple estimates suggesting potential inflows in the $15-50 billion range. The package also arrives in a backdrop where oil price assumptions, current account deficit estimates, and geopolitical risk can influence external financing needs.

The RBI Governor told media that the authorities were not targeting a specific amount, even as external estimates put an upper bound on potential inflows. That distinction matters because actual flows depend on market conditions, pricing, and investor risk appetite, factors economists said are difficult to quantify precisely at this stage.

Conclusion

India’s latest steps combine tax relief for FPIs in G-secs, expanded bond access through FAR, relaxed limits for foreign investors, and time-bound forex and hedging support for ECBs and FCNR(B) deposits. Economists cited in the report expect the combined measures to potentially bridge most of the FY27 BoP gap, with estimates ranging from $15 billion to $10 billion of inflows.

The next datapoints to watch are implementation details, bank mobilisation under the FCNR(B) window, and whether overseas demand rises for newly FAR-eligible longer-tenor G-secs during 2026. Policymakers have also signalled scope for further adjustments if needed to promote exports and attract capital inflows.