Government Taking Strategic Steps to Attract More Foreign Capital Inflows: FM Sitharaman

The central government is actively implementing new strategies aimed at bolstering foreign capital inflows to stabilize the domestic economy. Union Finance Minister Nirmala Sitharaman recently noted that the measures introduced by the administration and the Reserve Bank of India (RBI) represent an initial phase in a broader effort to revitalize foreign investment.

Addressing attendees at the Mindmine Summit 2026, Sitharaman emphasized that while current efforts are focused on the bond market, additional policy adjustments are anticipated. The Indian economy is currently navigating significant challenges stemming from the cost and availability of critical industrial raw materials, including crude oil and fertilizers, necessitating a proactive approach to managing financial resources.

Strategic Measures to Boost Foreign Capital Inflows

A detailed analysis conducted by the RBI and the government identified the bond market as a primary vehicle for attracting foreign capital inflows. To facilitate this, the government enacted a policy on June 5, 2026, which expanded the list of specified securities under the Fully Accessible Route (FAR). This expansion includes new issuances in government securities (G-Secs), intended to simplify the administrative and compliance requirements for international investors.

Furthermore, to increase the attractiveness of these assets, the government has implemented income tax exemptions on interest and capital gains derived from FPI investments in government securities. Sitharaman highlighted that these initiatives are specifically designed to draw international funds back into the country, marking the first step in a multi-pronged recovery strategy.

Monetary Support and Hedging Facilities

The RBI has also introduced significant liquidity support measures. Effective until September 30, 2026, banks have been granted access to a swap facility for Foreign Currency Non-Resident (FCNR(B)) deposits with maturities ranging from three to five years. This mechanism allows financial institutions to swap US dollar deposits with the central bank, effectively managing currency risks during volatile periods.

In addition, to encourage Public Sector Undertakings (PSUs) to raise external commercial borrowings (ECBs) before the September 30 deadline, the RBI has established a dedicated forex swap facility. According to Sitharaman, the central bank will manage currency hedging under this framework, which removes the burden from individual banks. This allows banking institutions to secure necessary funds with greater flexibility. By employing a highly calibrated approach, the government aims to ensure that domestic markets remain well-positioned to receive the essential investments required to mitigate current economic strain and support long-term growth.