As of June 7, 2026, the Reserve Bank of India (RBI) is actively evaluating strategies to bolster foreign currency inflows and stabilize the rupee. Following a period of significant volatility driven by rising oil prices and geopolitical tensions in the Middle East, the central bank is considering measures to encourage capital inflows, including the potential revival of mechanisms to attract deposits from non-resident Indians and adjustments to withholding taxes for overseas bond investors.
Why India is Acting Now
The urgency behind these policy discussions stems from a combination of currency depreciation and significant capital outflows. According to reporting by Reuters, the Indian rupee has slumped 5.5% this year, reaching an all-time low of 95.33 per dollar in early May 2026. This downward pressure has been exacerbated by a spike in oil prices linked to the ongoing war involving Iran.
While the RBI maintains that its foreign exchange reserves remain sufficient to cover 11 months of imports, the data reflects a challenging environment. Foreign exchange reserves, which had previously reached a peak of $728.5 billion, have faced downward pressure as equity outflows reached $19 billion during March and April 2026 alone.
Potential Policy Tools Under Consideration
The central bank’s strategy involves revisiting its “crisis-era playbook” to shore up external buffers. Sources familiar with the discussions indicate that two primary options are currently under serious consideration:
- Non-Resident Indian (NRI) Deposits: The RBI is exploring the revival of a mechanism last utilized in 2013 designed to incentivize dollar deposits from non-resident Indians.
- Tax Incentives for Investors: Authorities are discussing the elimination of withholding tax for overseas investors in government bonds to stimulate capital inflows.
While these discussions are active, no final decisions have been reached. Any implementation of these measures would require consultation with the Indian federal finance ministry, which holds the final authority on taxation policy.
Recent Trends in Foreign Exchange Reserves
The broader context of India’s foreign exchange reserves shows fluctuations in the face of global economic headwinds. While reserves have faced periods of decline, recent data indicates some recovery. According to Trading Economics, India’s foreign exchange reserves rose to $682.32 billion for the week ending May 29, 2026, up from $681.38 billion the previous week.
These figures highlight the central bank’s ongoing efforts to manage liquidity and maintain market stability. As the RBI continues to monitor the impact of global oil price volatility and capital market trends, its next moves will likely focus on balancing the need for dollar liquidity with the broader objectives of monetary policy and fiscal responsibility.