RBI measures may draw $50bn via bonds, aid rupee FY27

What changed on June 5, and why markets are watching

Policy steps announced by the Reserve Bank of India (RBI) and the Finance Ministry on June 5 are being read as a coordinated attempt to attract foreign capital into Indian government bonds and reduce pressure on the rupee. Analysts tracking the package say the reforms could improve the economics for overseas investors and also encourage banks to mobilise foreign currency deposits.

Several estimates referenced by market participants cluster around a similar number: foreign inflows of roughly $10 billion to $10 billion, with some forecasts going higher. Beyond the immediate impact, the package is also being linked to India’s broader push to increase acceptance of its government bonds in large global debt benchmarks.

Analysts’ inflow estimates: $10-75 billion across reports

Different institutions have put forward overlapping estimates for potential capital inflows tied to the measures. ICICI Bank Global Markets said the RBI’s measures, including support for foreign currency deposits, concessional foreign exchange swap facilities for certain external borrowings, and broader access for overseas investors, could attract around $10 billion in inflows.

A separate set of market expectations cited a wider band. SBI projected at least $10 billion of capital flows, while Kotak estimated the full package may bring $10 billion to $15 billion. Another summary of market expectations described the measures as aimed at attracting $10 billion to $15 billion in capital inflows.

Macquarie Capital, based on conversations with bankers, said the combined RBI and government measures could imply foreign exchange flows of $10 billion to $10 billion, which could help stabilise the rupee.

FCNR(B) deposits: why the pricing math matters

Part of the expected inflow is linked to foreign currency deposit mobilisation through banks. Macquarie Capital highlighted the cost and rate comparison that could make FCNR(B) deposits more attractive.

The report noted that hedging costs are around 3%, and the FCNR(B) three-year deposit rate is around 3.5%. Domestic three-year term deposit rates are around 6.5%. Based on that spread, the report said bankers can offer closer to 6% on FCNR deposits and mobilise them.

This channel matters because it can generate foreign exchange inflows through the banking system, supporting external financing conditions at a time when the rupee is sensitive to global risk events.

FAR expansion and easier FPI rules on G-secs

A key RBI announcement was the expansion of the Fully Accessible Route (FAR), which gives foreign investors wider access to government securities. The central bank broadened the FAR universe to include all new issuances of 15-year, 30-year and 40-year government bonds.

Alongside this, the RBI removed the 30% short-maturity limit. It also scrapped limits on short-term investment, concentration, and individual security exposure for foreign portfolio investor (FPI) investments under the general route.

SBI pointed to two supply and capacity markers that could influence demand: Rs 1.5 lakh crore of the new tenors is yet to be issued, and there is Rs 4.06 lakh crore of headroom under the general route.

Government tax exemption on G-secs: what is known

The government has exempted FPIs from income tax on interest income and capital gains from Indian government securities (G-secs). One report described this as having retrospective effect from April 1.

Another note summarising the change stated the exemption is effective 1 April 2026. Based on the same summary, Deloitte India estimated the exemption raises FPI returns on Indian G-secs by 15% to 20%.

SBI also quantified the potential benefit in rupee terms, saying the tax exemption on interest and capital gains for FPIs adds post-tax returns of Rs 4,000-5,000 crore plus Rs 500-1,000 crore.

Concessional FX swap window for PSU ECBs

The RBI also announced a concessional foreign-exchange swap facility to encourage external commercial borrowing (ECB) issuance by public sector undertakings (PSUs). The concessional FX swap is for 3- to 5-year PSU ECBs and runs until September 30.

SBI linked this move to a slowdown in external fund-raising, stating that ECB/FCCB flows fell 30% in FY26 to $12.9 billion. The same note said the facility should accelerate overseas borrowing by PFC, REC, and NTPC.

Bond index inclusion: the Bloomberg push and expected flows

India is also preparing to renew efforts to secure a place for its sovereign bonds in leading global debt benchmarks, including the Bloomberg Global Aggregate Index, according to a report in The Economic Times. Market participants believe that greater clarity around trade settlement and regulatory supervision could improve India’s chances of joining the Bloomberg Global Aggregate Index, which is tracked by large fixed-income funds for passive allocations.

Government officials estimate that inclusion in additional global bond indices could attract between $1 billion and $11 billion in fresh foreign inflows into Indian debt markets. Separately, industry estimates suggest designated Indian government bonds could attract around $1 billion in inflows in the near term as global investors position ahead of potential benchmark inclusion.

Vishal Mahadevia, Chairman of the Strategic Working Group on Private Equity and Venture Capital at the US-India Strategic Partnership Forum, said the reform would bolster India’s case for inclusion in global bond indices, supporting sustained capital flows and deeper integration with global financial markets.

What earlier index inclusion shows about demand

India’s government bonds have already begun seeing large foreign portfolio inflows following index inclusion developments. India was added to JP Morgan’s reference index for global government bonds on June 28, 2024. Its weight started at 1% and was set to rise 1 percentage point monthly until it reaches 10% by March 2025.

Total net bond purchases by foreign portfolio investors were estimated at about $1 billion between June 28 and July 16, and at $11.5 billion since the announcement of India’s admission to JP Morgan’s reference index.

S&P Global concluded that wider index inclusion could increase foreign participation in India’s government bond market to 10% from 0.9% in 2023, and that this would enable funds available for corporate debt issuers in India to almost triple relative to nominal GDP by 2030.

Market impact: rupee, borrowing costs, and the FY27 BoP gap

Several views tied the measures directly to currency stability and external financing. Macquarie said the implied foreign exchange flows of $10-50 billion could help stabilise the rupee.

SBI said at least $10 billion of capital flows could pull the rupee back toward 92-93 levels. HDFC Bank’s principal economist, Sakshi Gupta, said the combined measures could bridge the $10-50 billion balance of payments (BoP) gap projected for FY27, based on assumptions of a current account deficit of 2.1% of GDP and average crude oil prices of $10 a barrel.

Neelkanth Mishra, Executive Director for India at the World Bank Headquarters, said the tax exemption could accelerate inclusion in major global bond indices and improve investor confidence. He also pointed to the scale of passive benchmarks, noting that in 2019, the Bloomberg Global Aggregate Index and the FTSE index together had around $1.5 trillion of assets benchmarked to them, and that at even a 1% inclusion rate this implies $15-50 billion that can come in.

Key numbers at a glance

Why the story matters for investors tracking Indian debt

Taken together, the measures are designed to reduce friction for foreign investors in G-secs, improve post-tax returns, and broaden the set of bonds available under the FAR. The FX swap facility is aimed at lowering costs or improving feasibility for certain PSU external borrowings, while the FCNR(B) push targets deposit mobilisation through banks.

The bigger signal is that policy design is increasingly being linked to index eligibility. If the operational issues that global index providers focus on are addressed, the flow impact can extend beyond the one-off response to new rules and into systematic passive allocations.

Conclusion

The June 5 package combines tax relief, market-access changes, deposit mobilisation support, and an FX swap window, with multiple estimates putting the potential inflow impact near $10-50 billion and as high as $15 billion in some forecasts. The next leg of focus is whether these steps translate into improved odds of further global bond index inclusion, where official estimates point to an additional $1-11 billion of inflows.