Written by: Rouhin Deb, Rooplekha Dutta3 min readAug 6, 2026 06:30 AM IST First published on: Aug 6, 2026 at 06:30 AM ISTThe exchange rate has been the most discussed macroeconomic variable in India amid the current global crisis. The lopsided dependence on crude (a key input) is the predominant cause for the rupee depreciating vis-à-vis the dollar. However, the recent steps by the RBI and the finance ministry to liberalise foreign investment and fortify the rupee seem to strike the right balance to ensure a more stable currency.The RBI has temporarily relaxed interest rate restrictions on fresh Foreign Currency Non-Resident (Bank) [FCNR(B)] and Non-Resident External (NRE) deposits until September. This could attract up to $10 billion in additional inflows by enabling banks to mobilise foreign currency and rupee deposits from overseas investors. It complements a series of RBI measures to attract overseas capital and strengthen India’s external finances. By allowing banks to offer more competitive returns, alongside a concessional forex swap facility for these deposits and External Commercial Borrowings (ECBs), the RBI is leveraging global interest-rate differentials to mobilise nearly $20 billion in dollar funding. For foreign investors and the diaspora, this presents an immediate arbitrage opportunity. For India, reports suggest that these measures could attract $60-70 billion in foreign capital. The decision to double the individual investment limit for Persons Resident Outside India (PROIs) in equities from 5 per cent to 10 per cent and to increase the collective investment limit from 10 per cent to 24 per cent reduces compliance friction, drawing stable foreign capital directly into the corporate sector.AdvertisementAnother significant reform is the structural overhaul of the government securities (G-Sec) market. By exempting foreign institutional investors (FIIs) from income tax on interest and capital gains from G-Secs, effective April 1, the government has removed a longstanding withholding tax that discouraged overseas participation while helping reduce borrowing costs. With commercial banks, insurers and the RBI holding nearly 75 per cent of outstanding government securities, India’s bond market has long lacked global depth. Eliminating this tax friction makes Indian sovereign debt more competitive with US Treasuries and Japanese government bonds, placing it on a stronger global footing. The reform strengthens India’s case for inclusion in major global bond indices, ensuring sustained institutional inflows. Extending similar tax parity to the Bank for International Settlements further enhances India’s credibility with central banks and sovereign wealth funds.India is witnessing a surge in domestic investment, with private sector capital expenditure rising 67 per cent year-on-year in September 2025 and commercial credit expanding by 15 per cent. Sustaining this momentum without crowding out private investment requires a deep and liquid sovereign debt market. A broader global investor base improves price discovery, enhances competition and lowers the government’s borrowing costs by compressing term premia. Lower sovereign yields also establish more efficient benchmark rates, reducing the cost of corporate borrowing. Together, these reforms strengthen the rupee’s medium-term prospects by attracting stable foreign capital and reinforcing India’s long-term growth and macroeconomic stability.Deb is chief economist, Chief Minister’s Secretariat, Government of Assam. Dutta is Mukherjee Fellow, Policy Politics and Governance Foundation