India’s government and central bank are reportedly considering urgent measures, including a non-resident FX deposit scheme and tax relief on foreign holdings of government bonds, to attract dollar inflows and bolster the weakening rupee amid global uncertainties and significant capital outflows, sources familiar with the discussions told Reuters this week.
Mounting Pressure on the Rupee
The Indian rupee has faced considerable pressure, sliding to an all-time low of 95.33 per dollar last Thursday and experiencing a 5.5% slump this year. This depreciation is largely attributed to a spike in oil prices, exacerbated by the ongoing Iran war, which has entered its third month.
Global uncertainties have triggered substantial capital outflows from India. Equity outflows alone hit $19 billion over March and April, with cumulative 2026 withdrawals reaching approximately $20.6 billion, surpassing total outflows for all of 2025.
Foreign exchange reserves, while still substantial, have also seen a decline from a peak of $728.5 billion. Though the Reserve Bank of India (RBI) maintains its comfort with the current $698 billion in reserves, analysts caution that the headline figure may overstate the RBI’s immediate capacity, considering its $104 billion in short dollar forward commitments.
Proposed Policy Interventions
Policymakers are actively exploring two key mechanisms to ease pressure on the currency and bolster external liquidity. These discussions at the central bank have not been previously reported, though analysts have speculated on a potential revival of crisis-era strategies.
One measure under serious consideration is the revival of a non-resident FX deposit scheme, last deployed in 2013. This mechanism successfully attracted approximately $26 billion during a period when U.S. interest rates were near zero, with the central bank allowing banks to swap dollars raised at concessional rates.
A second option being discussed involves eliminating the 5 percent withholding tax currently charged to foreign investors in Indian government bonds. This tax relief aims to encourage greater inflows into the government bond market.
In 2025, foreign investors were net buyers of Indian government bonds, investing about $6.5 billion. However, this momentum has cooled significantly in 2026, with inflows of only around $1.1 billion so far, as sentiment turned cautious following the Iran conflict.
Sources indicate that no final decision has been taken, and any move would be made in consultation with the government, with the federal finance ministry holding the ultimate authority on taxation matters.
RBI’s Current Stance and Actions
The RBI has been actively intervening in the spot and forward FX market to mitigate the rupee’s decline. It has also clamped down on arbitrage trades by banks and urged oil companies to reduce dollar purchases in the spot market.
Despite these efforts, the rupee’s performance is largely in line with other oil-importing Asian economies facing similar global headwinds. RBI Governor Sanjay Malhotra recently described India’s $698 billion reserves as
