Rupee Support Plan: 10% FPI Cap, FX Deposits 2026

Rupee pressure brings dollar inflow measures back into focus

Indian policymakers are weighing a fresh set of steps to attract dollar inflows and support the rupee amid global uncertainty, according to sources cited by Reuters. The discussions span the government, the Reserve Bank of India (RBI), and the market regulator SEBI, and include both near-term liquidity tools and structural changes to widen foreign participation in Indian markets. The immediate objective is to bolster external liquidity and foreign exchange buffers at a time when oil prices are adding pressure to the currency.

Reuters reported that India’s central bank is studying ways to mobilise dollar inflows to cushion the rupee, with sources pointing to pressure linked to a spike in oil prices driven by the Iran war. While authorities have not announced a final package, multiple options are described as being under active consideration.

Two key ideas under review: FX deposits and bond tax relief

One of the measures being discussed is reviving a mechanism used earlier to draw dollar deposits from non-resident Indians. Sources told Reuters this was last used in 2013, and market participants have again floated the idea of a window for foreign currency non-resident deposits at attractive rates.

A second proposal is to remove the withholding tax charged to foreign investors in Indian government bonds. Reuters sources said the rate under discussion is 5%, and eliminating it could encourage bond inflows. A key caveat is that taxation decisions rest with India’s federal finance ministry, and any changes would be taken after consultation.

No final decision yet, timeline remains open

The reporting makes clear that no final decision has been taken on either the FX deposit scheme or the bond-tax proposal. Reuters said it could not establish when a decision would be made.

Separately, another part of the policy pipeline points to announcements in early July, after consultations with the RBI and SEBI. Those consultations were expected after the RBI unveils its mid-term credit policy on Monday, as per the provided text.

What traders say could also work: rates, liquidity, and “Operation Twist”

Market participants cited in the report also discussed the “classic interest rate defence” of a currency. The core argument is that higher short-term rates can incentivise investment and curb speculation, instead of keeping domestic money market rates low.

The State Bank of India suggested “Operation Twist”, described as liquidity-neutral sales of short-term bonds counteracted by simultaneous purchases of longer-term government securities. Others expect more conventional measures such as tightening rupee liquidity to push up short-term rates. Participants also said the regulator could more actively dissuade net outward dollar flows from the domestic economy.

Measures already seen: trading limits and an oil importer window

Some steps associated with the earlier “taper tantrum” era have already reappeared, according to the text. These include trading limits and a special window for oil importers to meet their dollar requirements directly from the RBI and large state-owned banks.

The text also flags concerns from market participants about exchange-rate confidence after “unexpected and drastic” regulatory measures in the non-deliverable forward (NDF) market. In that context, traders argued that rebuilding confidence in exchange-rate stability is a prerequisite to bringing foreign investors back.

Broader capital market easing: SWAGAT-F and digital onboarding

On the capital markets side, SEBI has moved to simplify access for foreign investors. On December 1, the regulator announced streamlined FPI and Foreign Venture Capital Investor (FVCI) regulations under a single-window framework called SWAGAT-F, slated to come into full force 180 days from the notification date.

The text also notes a SEBI notification to facilitate seamless digital signature certificates for FPIs, aimed at smoother compliance and onboarding.

Foreign investor limits in listed companies: 10% individual cap, 24% combined

A major structural change under discussion is raising investment caps for individual foreign investors in Indian listed companies. Reuters cited senior government officials and documents indicating the RBI is set to increase the cap for individual foreign investors from 5% to 10%.

Under the cited FEMA rules, Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs) currently have a 5% limit, and the proposal envisages extending benefits to all foreign individual investors. The combined holding limit for all overseas individual investors in a listed company is set to rise from 10% to 24%, according to the same reporting. Officials said the government, RBI and SEBI were in the final stages of discussion, with efforts to prevent regulatory loopholes.

RBI steps announced: ECB limits raised, NRI deposit rates freed till October

The text also includes measures already taken by the RBI to lift inflows. Economic Affairs Secretary Ajay Seth said these steps would increase overseas fund inflows and help strengthen the rupee.

As described, the RBI raised the External Commercial Borrowing (ECB) limit under the automatic route from $150 million per financial year to $1.5 billion, and eased norms for FPI investments in the debt market. Among the fresh steps, the cap was removed on the interest rate that lenders can offer on foreign deposits by NRIs, with the relaxation in force till October.

Key measures and numbers at a glance

Market impact: why these measures matter for the rupee and flows

The measures described are aimed at improving the availability of foreign exchange and encouraging capital inflows through multiple channels. An FX deposit window can add to external liquidity quickly, while changes to bond taxation and participation rules can improve India’s appeal to overseas investors in debt and equities.

At the same time, the discussion highlights a trade-off policymakers often face: supporting the rupee through liquidity tightening and higher short-term rates can attract capital, but it can also tighten domestic financial conditions. The reporting also underlines that confidence in exchange-rate policy matters, particularly after changes affecting offshore hedging markets like the NDF.

Analysis: a mix of quick inflow tools and longer-term market access

Taken together, the options on the table combine short-horizon tools and structural market access reforms. The FX deposit mechanism and bond tax relief are designed to be direct incentives for dollar inflows. The proposed increases in foreign individual shareholding caps, along with SEBI’s streamlining via SWAGAT-F and digital signature facilitation, signal an effort to reduce friction for foreign participation.

The text also indicates that authorities are trying to keep the response coordinated: decisions are expected to involve consultations across the RBI, the finance ministry, and SEBI. That coordination matters because the proposals cut across monetary operations, capital account rules, and taxation.

Conclusion

India is evaluating a set of measures to attract dollar inflows and ease pressure on the rupee, ranging from a revived non-resident FX deposit window and bond-tax relief to higher foreign ownership limits and operational simplifications for FPIs. With some RBI steps already announced and more proposals in late-stage discussions, the next formal signals are expected after regulator consultations and the RBI’s scheduled mid-term credit policy, with early July cited as a likely window for announcements in the provided text.