The Reserve Bank of India and the federal government announced a sweeping package on June 5 designed to attract foreign capital into Indian government bonds, citing sustained pressure on the rupee from elevated oil prices and record equity outflows. The measures include retroactive tax exemptions and expanded access to long-dated securities, with analysts estimating the steps could draw up to $50 billion in inflows over coming months .
A presidential ordinance titled the Income Tax Amendment Ordinance 2026 exempts foreign portfolio investors and the Bank for International Settlements from all taxes on interest income and capital gains from government securities, effective retroactively from April 1, 2026. Foreign investors previously faced a 12.5% long-term capital gains tax on bonds held over 12 months and a 20% withholding tax on interest income .
The RBI expanded the Fully Accessible Route to include all new issuances of 15-year, 30-year, and 40-year government bonds, widening the pool of securities available to foreign investors without caps. The central bank also removed limits on short-term investments, concentration, and individual securities for foreign portfolio investors under the General Route .
Beyond bond market access, the RBI announced a concessional foreign exchange swap facility available until September 30, 2026, to incentivize external commercial borrowings by public sector undertakings. For banks, the central bank will bear the full hedging cost on fresh three-to-five-year Foreign Currency Non-Resident Bank deposits raised through September and exempted such deposits from statutory reserve requirements .
The RBI restored the timeline for realization of export proceeds to nine months to improve trade-related foreign exchange flows . Goldman Sachs said the measures should limit depreciation pressure on the rupee and revised its three-month dollar-rupee forecast to 96, down from 97 previously. ICICI Bank Global Markets estimated the package could attract around $50 billion in inflows, while Union Bank of India projected at least $30 billion over four months .
The rupee hit a record low past 96 per dollar in May amid the Iran conflict’s impact on oil prices but has since recovered, trading near 95.29 against the dollar at the start of this week. Net FPI outflows stood at $13.7 billion between April 1 and June 2, according to RBI data, underscoring the urgency behind the measures . The expanded Fully Accessible Route bonds are already part of three global indices, and market participants expect additional passive inflows as India’s weight in those benchmarks adjusts to the newly eligible securities .
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