Societe Generale notes that the Government of India and Reserve Bank of India (RBI) are prioritising capital inflows to support the Indian Rupee (INR) rather than tightening policy. Measures include tax relief and expanded access for foreign investors in government bonds, incentives for FCNR(B) deposits, and a concessional European Central Bank (ECB) swap window. Authorities are also willing to tolerate a wider fiscal deficit following the war.

India targets bond inflows and FX stability

"The Government of India and RBI have shifted toward a flows-driven approach to support the INR, rolling out a package aimed at bringing in FPI capital rather than tightening policy."

"The removal of withholding tax for FPIs on G-sec income, expansion of the FAR route, and easing of investment limits are designed to deepen bond market inflows."

"At the same time, banks have been incentivised to raise FCNR(B) deposits with attractive rates (6–7%+), with RBI absorbing hedging costs."

"A concessional ECB swap window is also reviving offshore borrowing, reinforcing a broader push to engineer dollar inflows and stabilise the INR."

"The government of India is open to letting fiscal gap widen to as much as 4.8% of GDP vs its earlier goal of 4.3% in the wake of the ongoing war."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)