The Reserve Bank of India's net-short dollar book has risen to about $110-$115 billion in recent weeks, marking a new record as the central bank ramped up interventions after the rupee weakened to a record low on May 20, almost hitting the 97 per dollar mark. According to Business Standard, the book was at $95.3 billion in April, down from a record high of $103.1 billion the previous month. The central bank's interventions have been primarily conducted through offshore non-deliverable forwards (NDFs), allowing the RBI to influence exchange rates without immediately depleting foreign-exchange reserves. RBI Governor Sanjay Malhotra said on Friday that while the authority does not resist market-driven adjustments in the rupee, it curbs excessive volatility in the exchange rate, adding that the currency is often influenced by speculative pressures that are not in sync with fundamentals.
The Indian rupee appreciated 81 paise to close at 94.93 (provisional) against the US dollar on Friday after the Reserve Bank announced comprehensive measures to support foreign capital inflows and strengthen forex liquidity. According to The Times of India, the rupee has slid from 85 to 96 against the US dollar since January 2025, turning effective dollar returns negative for overseas investors even when Indian assets hold their rupee value. The central bank governor emphasized that foreign exchange reserves provide a strong buffer against external shocks and the central bank remains vigilant and is fully prepared to do whatever it takes to preserve orderly market conditions. India's foreign exchange reserves stood at a healthy US$ 682.32 billion, with the reserves providing adequate coverage including import cover of about 11 months and external debt coverage of 89.1 per cent. As per NDTV Profit, the measures were announced alongside the Monetary Policy Committee's decision to hold the policy repo rate unchanged at 5.25%.
The government has issued an ordinance amending the Income-tax Act to exempt foreign institutional investors from paying tax on both interest income and capital gains arising from Government securities. As per CNBC TV18, the exemption takes effect from April 1, 2026 and applies to eligible foreign investors investing in G-secs. Currently, foreign investors are subjected to a 12.5 per cent long term capital gains (LTCG) tax on listed shares and bonds held for over 12-months, and a 20 per cent withholding tax on interest earned from government bonds. This tax relief addresses a key concern raised by market participants who argued that India's tax framework and investment restrictions reduced the attractiveness of Indian debt compared with other markets competing for global capital. According to The Times of India, removing the LTCG overhang directly helps index-linked and long-duration foreign investors for whom G-Secs are a benchmark requirement, making India a more straightforward comparison against peer emerging market sovereign debt. India's G-Secs now offer the full pre-tax yield of ~7% as the after-tax yield for foreign investors, an improvement of 140–150 basis points overnight.
The RBI has significantly expanded investment access for overseas investors, with investment limits for Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs) in equity instruments being increased without SEBI registration. As per CNBC TV18, the central bank has increased investment limits for NRIs and OCIs investing in listed equities without SEBI registration and has proposed extending the same facility to all individual Persons Resident Outside India (PROIs). This move is expected to enhance retail participation from overseas investors and improve liquidity in domestic equity markets. The RBI has also restored the period for realisation of export proceeds to nine months, providing additional support for foreign investors. According to The Times of India, the same facility is also being extended to all individual Persons Resident Outside India (PROIs) at par with NRIs and OCIs, bringing all overseas individual investors on a par with NRIs and OCIs. The time available for realisation of export proceeds is being restored to nine months, easing pressure on exporters navigating elevated freight and insurance costs.
According to the latest RBI data, India's forex reserves have strengthened further to $682.32 billion as of the week of May 29, having dropped more than $40 billion since the Iran war began in late February. As per Business Standard, foreign currency assets (FCAs), the largest component of the reserves, increased by $3.116 billion to $546.148 billion during the reporting week, while the value of the country's gold reserves declined by $2.186 billion to $112.6 billion. India's reserve position with the IMF increased by $8 million to $4.826 billion during the reporting week, as per the central bank's data. The rupee has borne the brunt of the oil-price shock caused by the Iran war, as India depends heavily on imports to meet its energy needs, with the currency repeatedly falling to record lows this year as refiners sold rupees for dollars to pay for costlier crude. However, the currency may now find support from coordinated measures rolled out by the government and the RBI on Friday to attract capital flows.
