Finance Minister Nirmala Sitharaman on Monday described recent measures to attract foreign capital as the "first step," signaling that additional initiatives are being considered to encourage greater foreign capital inflows, according to a Business-Today report citing PTI. Addressing the Mindmine Summit 2026, Sitharaman stressed the importance of preparing for uncertainties arising from the ongoing geopolitical crisis and US-Iran conflict, noting that India's economy is facing significant pressure due to its dependence on imports of critical raw materials, crude oil and fertilisers.
Expansion of Bond Market Access
As part of the effort to attract foreign investment, 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, according to the report. This move aimed at simplifying investment procedures and reducing compliance requirements for foreign investors participating in the government bond market. In addition, foreign portfolio investors were granted income tax exemptions on interest earnings and capital gains arising from investments in government securities.
Sitharaman said assessments conducted 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. She noted that while the current focus is on the bond market, the government's plans do not end there, and further steps are being considered.
RBI Swap Facilities and Hedging Cost Implications
Separately, the Reserve Bank of India on June 5 permitted banks to utilise 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, according to the report. 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 RBI introduced a forex swap window for public sector enterprises raising external commercial borrowings (ECBs), 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. For trade finance professionals, this reduces the cost of hedging currency exposure in cross-border borrowings and deposits, potentially lowering the overall cost of capital for foreign-currency-denominated trade transactions.
| Measure | Date | Key Feature | Duration |
|---|---|---|---|
| Expansion of FAR for government securities | June 5 | Newly issued G-secs included; simplified investment procedures | Ongoing |
| Tax exemption for FPIs on G-sec investments | June 5 | Income tax exemption on interest and capital gains | Ongoing |
| FCNR(B) swap facility for banks | June 5 | Banks exchange USD deposits with RBI | Until Sept 30 |
| Forex swap window for PSU ECBs | June 5 | PSUs can swap forex through RBI | Until Sept 30 |
External Sector Strains and Forex Reserves
India's forex reserves declined by $711 million to $681.61 billion during the week ended June 5, according to the report. The finance minister said 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.
Geopolitical Risks and Import Costs
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, while 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.
Sitharaman emphasised that India is preparing for exigencies in wake of the ongoing geopolitical crisis and US-Iran conflict. For import-dependent sectors such as fertilisers and crude oil, the combination of higher global prices and potential supply disruptions could increase working capital requirements and strain trade finance lines.
Outlook for Foreign Capital
Referring to the recent initiatives, Sitharaman said they are the beginning of a broader strategy to draw international capital back into India. The finance minister's comments suggest that the government and RBI are coordinating to maintain financial stability while gradually opening the bond market to foreign investors. For CFOs and treasury directors, the reduction in hedging costs through RBI's swap windows and the improved accessibility of government bonds via FAR create new opportunities to manage currency risk and diversify funding sources.
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