RBI, Govt Measures Could Attract $35-40 Bn In Foreign Capital: Yes Bank
India could attract USD 35-40 billion in foreign capital following a series of measures announced by the Reserve Bank of India (RBI) and the government, helping bridge the country's projected balance of payments (BoP) gap in FY27, according to a report by Yes Bank.The report said the recent regulatory and tax changes are aimed at improving the attractiveness of Indian financial assets to overseas investors and strengthening external sector stability. The anticipated inflows could also provide support to the rupee by boosting the RBI's foreign exchange reserves.
According to the report, incentives linked to Foreign Currency Non-Resident (Bank) or FCNR(B) deposits are expected to be a key driver of inflows. The RBI has exempted FCNR(B) deposits from Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) requirements and will bear hedging costs on FCNR(B) deposits with maturities of three to five years raised by authorised dealer banks.
Yes Bank estimates that these measures could generate as much as USD 35-40 billion in inflows through FCNR(B) deposits alone.
Bond Market Reforms Seen Supporting Inflows
The report also pointed to recent steps aimed at increasing foreign participation in India's government securities market. The government has reduced the long-term capital gains tax on government securities for foreign investors to nil from 12.5 per cent and removed the 20 per cent withholding tax.
In addition, foreign portfolio investors (FPIs) will be allowed to invest in government securities with maturities of 15, 30 and 40 years under the Fully Accessible Route (FAR). Restrictions on short-term investments, concentration limits and security-wise limits under the General Route for FPI investments in government securities have also been removed.
The report said these measures are expected to make Indian government bonds more attractive to overseas investors and support higher capital inflows over time.
Meanwhile, inflows through External Commercial Borrowings (ECBs) are also expected to rise, though on a smaller scale. Yes Bank estimated additional ECB inflows of around USD 4-5 billion following the latest policy changes.
The report further noted that investment limits for Non-Resident Indians (NRIs), Overseas Citizens of India (OCIs) and Persons Resident Outside India (PROIs) in equity instruments without SEBI registration have been increased, broadening avenues for overseas investment in Indian markets.
According to Yes Bank, the combined impact of these measures could strengthen India's external financing position, support the rupee and enhance the country's foreign exchange reserve buffer in the coming fiscal year.
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