Citigroup economists are warning that India could move toward tighter capital controls in the coming months as the rupee tests record lows, amid mounting pressure from high oil prices and a widening current‑account deficit. The bank’s South Asia research team, led by Samiran Chakraborty, has flagged measures such as tighter restrictions on overseas direct investment by Indian businesses and stricter rules on repatriation of foreign‑currency earnings as options policymakers may consider to shore up foreign‑exchange reserves and support the rupee.
The Indian currency has weakened sharply in 2026, making it one of Asia’s worst‑performing currencies as Brent crude prices approach 110 dollars a barrel and the West Asia conflict fuels capital flight. On May 15, the rupee breached the 96‑per‑dollar threshold for the first time, hitting an intraday low past 96 and closing near its weakest level ever on the spot market, according to market data. Dealers say the Reserve Bank of India has stepped in repeatedly with dollar sales from state‑owned banks and has tightened speculative activity in the foreign‑exchange market, but those interventions have had only a temporary stabilizing effect.
Citigroup notes that India has already taken preliminary steps to curb outflows, including higher fuel prices and increased taxes on gold imports, as well as potential hikes in import duties on edible oils to support domestic farmers and reduce the roughly 20‑billion‑dollar annual oil‑import bill. The bank sees a “high” likelihood that authorities will introduce further measures in the near term, such as reducing the amount of domestic borrowing Indian companies can use for overseas acquisitions and shifting some outbound investments to a government‑approval route rather than allowing automatic clearance.
Analysts from other institutions warn that FX reserves, while still sizable, are being drawn down faster as oil‑driven pressures persist. ANZ economists project India’s current‑account deficit at about 1.9 percent of GDP in 2026, while Nomura’s Rob Subbaraman has highlighted how quickly risk premiums can rise and reserves can erode once market sentiment turns, echoing lessons from past global and regional crises. With oil prices and geopolitical tensions showing little sign of easing, policymakers now face a delicate balancing act: defending the rupee without choking growth‑supporting capital flows or triggering broader market volatility.
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