Source Reuter
MUMBAI — The Reserve Bank of India’s (RBI) strategic push to draw foreign capital has yielded dramatic results, with cumulative inflows crossing $40.81 billion within two months of rolling out targeted capital-flow initiatives.
The central bank’s package, introduced in early June, was designed to shore up foreign exchange reserves, bolster the balance of payments, and stabilize the Indian rupee against ongoing geopolitical headwinds and global market volatility.
Non-Resident Deposits Lead the Surge
The cornerstone of the surge has been the Foreign Currency Non-Resident (Bank) [FCNR(B)] deposit scheme. By offering banks a zero-cost hedging facility and allowing higher yield incentives, the RBI sparked a massive wave of overseas dollar deposits.
FCNR(B) Deposits: $36.7 billion (accounting for nearly 90% of total inflows)
Government Securities (G-Secs): Over $7 billion mobilised under expanded investor access
Overseas Foreign Currency Borrowings: $2.57 billion
External Commercial Borrowings (ECBs): $1.50 billion
After pulling in over $20 billion during the first month, momentum remained steady through July, demonstrating sustained global investor confidence rather than a short-lived spike.
Key Drivers & Foreign Exchange Cushion
“The inflows have significantly strengthened India’s external position amid global geopolitical uncertainties and volatile capital flows,” noted RBI Governor Sanjay Malhotra in recent remarks, confirming that foreign exchange mechanisms remain well-calibrated to absorb risk while preserving financial stability.
The central bank kept its benchmark policy repo rate steady at 5.25%, maintaining an accommodating stance that complements its macroprudential external sector measures. Analysts emphasize that the steady influx of foreign currency provides the RBI with substantial reserves to smooth out sharp fluctuations in the domestic currency without draining foreign reserves.
Projections and Next Steps
Economic forecasts suggest the inflow wave is far from over:
SBI Economic Research projects total cumulative capital inflows under these measures could eventually reach $80 billion to $85 billion, with FCNR(B) deposits expected to contribute up to $70 billion.
With the temporary expanded window for long-dated government securities access set to close on September 30, market participants expect another acceleration in foreign debt inflows as global institutional investors rush to lock in favorable terms before the deadline.
