Finance Minister Nirmala Sitharaman on Monday termed the recent measures to attract foreign capital as the “first step”, indicating that India is preparing for contingencies arising from the ongoing geopolitical crisis and the US-Iran conflict.
She described the recent initiatives taken by the Reserve Bank of India (RBI) and the government to draw overseas investment as an initial move, signaling that additional measures could follow to encourage greater foreign capital inflows.
Sitharaman stressed the importance of preparing for uncertainties stemming from a rapidly changing global environment, noting that India's economy faces significant pressure due to its dependence on imports of critical raw materials, crude oil, and fertilisers.
According to a PTI report, addressing the Mindmine Summit 2026, Sitharaman said assessments by the RBI and the government indicated that the domestic bond market has the potential to serve as an effective channel for attracting foreign investment.
Measures to Attract Foreign Capital
As part of this effort, the government expanded the list of securities eligible under the Fully Accessible Route (FAR) on June 5, allowing newly issued government securities to be included. The move aimed to simplify investment procedures and reduce compliance requirements for foreign investors participating in the government bond market. Additionally, foreign portfolio investors were granted income tax exemptions on interest earnings and capital gains from investments in government securities.
Referring to these initiatives, Sitharaman said they are the beginning of a broader strategy to draw international capital back into India. She noted that while the current focus is on the bond market, the government's plans do not end there. Further steps are being considered as authorities recognize the need to attract a larger pool of foreign investment.
Separately, the RBI on June 5 permitted banks to use the central bank's swap facility for Foreign Currency Non-Resident (Bank), or FCNR(B), deposits with maturities of three to five years until September 30. This facility enables banks to exchange their US dollar deposits with the RBI, helping them manage foreign exchange exposure more effectively.
In another step aimed at attracting overseas capital, the central bank introduced a forex swap window for public sector enterprises raising external commercial borrowings (ECBs). The arrangement will remain available until September 30.
Sitharaman said the RBI's framework effectively transfers the cost of currency hedging to the central bank. As a result, banks are better positioned to mobilise funds from abroad without bearing the full burden of exchange-rate risks. According to the finance minister, the measures have been designed carefully to ensure that financial markets receive the investment support they require while maintaining stability.
Government officials had earlier indicated that additional initiatives to encourage foreign direct investment are being considered. These measures are expected to strengthen foreign exchange reserves and support the rupee.
Strain on External Sector
India's forex reserves declined by $711 million to $681.61 billion during the week ended June 5. Meanwhile, rising global fertiliser prices have emerged as a growing concern. Government sources previously said that the fertiliser ministry has sought a doubling of subsidy support for the current financial year. The Union Budget has earmarked Rs 1.71 lakh crore towards fertiliser subsidies for the fiscal.
The disruption of shipping through the Strait of Hormuz amid tensions in West Asia is expected to increase India's fertiliser import costs. At the same time, a shrinking global supply pool has made international procurement more complicated.
As a result, importers are grappling with two key challenges: securing adequate supplies through an increasingly difficult tendering process and coping with the rapid pace of fertiliser price increases. The closure of the Strait has also pushed up concerns over India's crude oil import bill. The country imports roughly 87% of its crude oil requirements, with about 46% of those shipments moving through or close to the Strait of Hormuz.
India's dependence on the route extends to cooking gas as well. Around 60% of the country's LPG consumption is met through imports, and nearly 90% of those supplies pass through the Strait.
