Key Moments
- Authorities now favor capital inflows to support the INR, instead of tighter policy, according to Société Générale.
- New steps aim to lift foreign bond demand, boost FCNR(B) deposits, and revive offshore borrowing through a concessional ECB swap window.
- The Government of India may allow the fiscal deficit to rise to 4.8% of GDP, up from 4.3%, due to the ongoing war.
Flows-Based Strategy to Support the Rupee
Société Générale says India and the RBI now focus on capital inflows to support the rupee. Instead of tightening policy further, they aim to attract foreign money and stabilize the currency.
In addition, the approach targets stronger foreign portfolio inflows. As a result, policymakers are shifting toward a flows-driven framework for INR support.
Measures to Boost Bond Market Inflows
Authorities are also making government bonds more attractive to foreign investors. For example, they are removing taxes and easing access rules.
As Société Générale notes: “The Government of India and RBI have shifted toward a flows-driven approach to support the INR, rolling out a package aimed at bringing in FPI capital rather than tightening policy.”
Several bond-market reforms support this shift:
| Measure | Target Group | Impact |
|---|---|---|
| Removal of withholding tax on G-sec income | Foreign portfolio investors | Raises net returns and improves demand |
| Expansion of the FAR route | Global investors | Improves access to Indian bonds |
| Easing of investment limits | Foreign bond investors | Allows higher allocations |
FCNR(B) Deposits and Offshore Borrowing
Banks are also working to attract more FCNR(B) deposits. In particular, they offer higher rates to draw in foreign currency funds.
Société Générale adds: “At the same time, banks have been incentivised to raise FCNR(B) deposits with attractive rates (6–7%+), with RBI absorbing hedging costs.”
At the same time, authorities support offshore borrowing through a concessional swap window. This helps increase dollar inflows and stabilise the rupee.
As a result, external funding channels now play a larger role in currency management.
Fiscal Deficit Tolerance Widens After War
On the fiscal side, the government is now more flexible with its deficit target. It may allow the gap to widen to 4.8% of GDP, up from 4.3%.
Société Générale says this reflects the impact of the ongoing war. However, it also fits into a broader strategy that combines fiscal easing with stronger capital inflows.





