What steps India has taken to stem dollar outflows, support rupee

India's currency has tumbled to record lows this year because of pressure on the economy's balance of payments (BoP), prompting steps by authorities to try to cool dollar outflows.

A surge in oil prices following the Iran ​conflict and selling of Indian stocks by foreign investors are likely to widen ​the BoP deficit this financial year, economists say.

On Friday, the Reserve Bank of India (RBI) announced a series of measures ‌to try to draw dollars into the economy and stem pressure on the rupee, which economists estimate could pull in close to $30 billion - $50 billion.

Below are steps India is taking to manage dollar outflows:

 

Boosting bond flows

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

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

A wider pool of government bonds will have no foreign investment limits, the Reserve Bank of India said.

Tapping the diaspora

The Reserve Bank of India also announced incentives on Friday for banks to raise foreign currency deposits from non-resident Indians. The central bank will bear the hedging cost for ‌3-5 year deposits till September 30, 2026.

Push for foreign currency borrowings

To boost foreign currency borrowings, the RBI will offer a concessional swap rate for government-owned companies. Announced on Friday, the concessions went into effect immediately till September 30, 2026.

Encouraging non-resident investments in equities

The government and RBI on Friday implemented higher limits for equity investments by non-resident Indians. The announcement was first made in the annual federal budget in February.

Export proceeds

The RBI reduced the time limit for bringing back export proceeds to nine months from 15 months. The time limit was extended to 15 months last year due to trade tensions with the United ​States.

Higher duties on gold, silver

India raised import tariffs on gold and silver to 15 per cent from 6 per cent in May.

The government has imposed a ‌10 per cent basic customs duty and a 5 per cent Agriculture Infrastructure and Development Cess (AIDC) on gold and silver imports, taking the effective import tax to 15 per cent from 6 per cent.

Tighter import rules

India imposed tougher import rules on gold and silver in May.

It ​has tightened rules ‌for duty-free gold imports for jewellery exports by capping imports at 100 kilograms per licence until further notice.

India last month, placed imports ‌of silver bars with 99.9 per cent purity and all other semi-manufactured forms of silver under the restricted category with immediate effect.

Appeal to conserve forex 

While India has not imposed restrictions on travel, Prime Minister Narendra Modi appealed in May to citizens to ‌avoid ​unnecessary foreign travel.

He ​also urged people to work from home to conserve fuel and help the government reduce costly oil imports.

Steps to curb currency speculation 

In February and March, the Reserve Bank of India cut the limit for net open ‌forex positions that banks can ​hold.

The step sought to rein in speculative positions in the rupee, which were exacerbating depreciation pressures.