How India is tackling balance of payments pressure as rupee hits record lows

India’s currency has tumbled to record lows this year amid growing pressure on the country’s balance of payments (BoP), prompting authorities to roll out a series of measures aimed at attracting dollar inflows and limiting outflows.

Economists say a surge in oil prices following the Iran conflict, along with continued selling of Indian stocks by foreign investors, is likely to widen the BoP deficit during the current financial year.

In response, the Reserve Bank of India (RBI) announced a set of measures on Friday designed to draw more dollars into the economy and ease pressure on the rupee. Economists estimate the steps could attract between $30 billion and $50 billion.

Here are the key measures announced by the government and the RBI:

Boosting bond flows

Among the measures announced on Friday, the government removed the 12.5% capital gains tax on foreign investors in Indian bonds and scrapped the 20% tax on interest earnings. The exemptions will take effect from April 1, 2026.

The Bank for International Settlements, an international financial institution and active investor in government securities, has also been exempted from these taxes.

In addition, the RBI said a wider pool of government bonds will be made available without foreign investment limits.

Tapping the diaspora

The RBI also unveiled incentives for banks to raise foreign currency deposits from non-resident Indians.

Under the scheme, the central bank will bear the hedging cost for deposits with maturities of three to five years until September 30, 2026.

Push for foreign currency borrowings

To encourage overseas borrowings, the RBI will provide a concessional swap rate for government-owned companies.

The concessions were announced on Friday and took effect immediately. They will remain in place until September 30, 2026.

Encouraging non-resident investments in equities

The government and the RBI on Friday implemented higher limits for equity investments by non-resident Indians.

The move follows an announcement made in the federal budget presented in February.

Faster repatriation of export proceeds

The RBI has reduced the deadline for bringing export proceeds back into the country to nine months from 15 months.

The limit had been extended to 15 months last year because of trade tensions with the United States.

Higher duties on gold and silver

India increased import tariffs on gold and silver to 15% from 6% in May.

The revised structure includes a 10% basic customs duty and a 5% Agriculture Infrastructure and Development Cess (AIDC) on imports of gold and silver.

As a result, the effective import tax on both metals has risen to 15% from 6%.

Tighter import rules

The government also tightened import rules for gold and silver in May.

Duty-free gold imports for jewellery exports have been capped at 100 kilograms per licence until further notice.

Last month, India also placed imports of silver bars with 99.9% purity, along with all other semi-manufactured forms of silver, under the restricted category with immediate effect.

Appeal to conserve foreign exchange

While no restrictions have been imposed on overseas travel, Prime Minister Narendra Modi appealed to citizens in May to avoid unnecessary foreign travel.

He also urged people to work from home in order to conserve fuel and help reduce costly oil imports.

Measures to curb currency speculation

In February and March, the RBI reduced the limit for net open foreign exchange positions that banks can hold.

The move was aimed at curbing speculative positions in the rupee, which were adding to depreciation pressures.

(With inputs from Reuters)