The Reserve Bank of India (RBI) Governor Sanjay Malhotra on Friday announced five measures aimed at bolstering the country's foreign exchange reserves and attracting foreign investments. These steps come at a time when foreign investors have been exiting Indian equities at a record pace, putting significant pressure on the rupee and India's foreign exchange reserves.
The situation is particularly critical as the ongoing US-Iran conflict has led to a sharp rise in global crude oil and energy prices. This has increased pressure on India's balance of payments and current account deficit due to higher import bills.
RBI Announces 5 Steps to Attract Foreign Inflows
The first measure involves widening the scope of 'specified securities' under the Fully Accessible Route (FAR) for government securities. This now includes all fresh issuances of 15-year, 30-year, and 40-year government bonds. Additionally, restrictions relating to short-term investments, concentration limits, and exposure to individual securities for foreign portfolio investors under the General Route have been removed. Governor Malhotra stated that these steps, combined with tax-related incentives announced by the government earlier today, are expected to improve foreign participation in financing government borrowings.
Second, investment limits for Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs) in listed equity instruments traded on stock exchanges without SEBI registration are being enhanced. The same benefit will now be extended to all individual Persons Resident Outside India (PROIs), placing them on an equal footing with NRIs and OCIs.
Third, a concessional foreign exchange swap facility will be made available until September 30, 2026, to encourage external commercial borrowings (ECBs) by public sector undertakings (PSUs).
Fourth, authorised dealer (AD) banks will be provided a similar facility to cover the full hedging cost for mobilising fresh FCNR(B) deposits with maturities ranging from three to five years. This facility will also remain available until September 30, 2026.
Fifth, it has been proposed to reinstate the export proceeds realisation period to nine months.
Governor Malhotra commented, "While these measures are expected to strengthen our balance of payments, we will continue to make the right policy adjustments to further promote exports and attract and incentivise capital inflows."
