The Reserve Bank of India and the Union government have moved in tandem to steady the rupee. The package is large enough to signal concern, and clever enough to buy time. It is not large enough to alter the economics of the rupee.
The immediate trigger is clear. The rupee has been depreciating against the dollar. The trade deficit has widened. Foreign exchange reserves have been drawn down to smooth the fall. Crude oil prices have added pressure. The rupee is no longer merely weak. It is threatening to enter politically uncomfortable territory.
The RBI has therefore turned to a familiar playbook. It has offered support for foreign currency non-resident bank deposits, relaxed some rules for non-resident investment, restored a longer window for exporters to bring back proceeds, and offered cheaper swap support to public sector undertakings borrowing abroad. The government has added tax concessions for foreign portfolio investors in government securities and expanded the set of bonds available to them. This is a package to attract dollars. It is not a package to earn them.
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FCNR deposits come with a hidden fiscal bill
The centrepiece is the FCNR(B) deposit window. Banks can mobilise dollar deposits from non-resident Indians. The problem is not the deposit itself. It is the hedge.
A bank that raises dollars must eventually repay dollars. If it converts the money into rupees and lends locally, it carries exchange-rate risk. Hedging that risk costs money. The transcript estimates this cover cost at about 3-3.5%. Add that to a dollar deposit rate of roughly 4%, and the all-in cost rises to about 8%. That is well above the average domestic fixed deposit rate of around 6.5-6.6%.
Banks would not rush to raise such money if they had to bear the full cost. So the RBI proposes to absorb the hedging cost. That makes the deposit attractive to banks. It also shifts the cost to the central bank’s balance sheet.
This is not costless intervention. Lower RBI income means lower future surplus transfer to the Union government. The hit may not be confined to one year, because these deposits could have maturities of three to five years. In effect, the fiscal cost is routed through the central bank rather than shown upfront in the Budget.
There is precedent. In 2013, when India was counted among the “fragile five”, a similar package attracted about $25-30 billion. The present package borrows from that experience. It may work again in the narrow sense of producing inflows. But it will only rent confidence. It will not create it.
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NRI equity inflows need returns, not sentiment
The relaxation for non-resident investment in Indian equities is less compelling. Investors do not buy nostalgia. They buy return.
Indian equities have not been cheap. Earnings growth has been modest. The transcript puts profit growth for FY26 at about 5%, while market valuations remain high at 21-22 times earnings. That makes India expensive relative to several other markets.
Foreign investors have pulled money out of India in recent years. Non-resident Indian investors are unlikely to behave very differently. They will compare India with the US, South Korea, Taiwan and other markets that offer exposure to semiconductors, artificial intelligence, space technology and other high-growth sectors.
India does not have listed equivalents of Nvidia, SK Hynix, Tesla or SpaceX. Domestic investors themselves have been increasingly keen to diversify abroad. In such a setting, easing access helps only at the margin. It cannot overcome weak expected returns.
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PSU borrowing abroad only shifts the pressure
The swap support for public sector undertakings, especially oil companies, addresses another pressure point. Oil marketing companies face under-recoveries when pump prices do not fully reflect crude costs. The transcript cites under-recoveries of about ₹1.8 lakh crore for the three months ending April.
If these companies borrow domestically, they add pressure to the banking system. Deposit growth is weak. Bank spreads are already compressed. Asking oil companies to fund large under-recoveries from domestic credit would crowd out other borrowers.
External commercial borrowing reduces that pressure. It also brings in dollars. But here again the economics does not disappear. Overseas borrowing has a cost. If hedging is subsidised, the RBI or the sovereign system bears part of it. If it is not subsidised, oil companies bear it.
This is a balance-sheet transfer. It eases visible pressure on the rupee and banks, but it does not erase the fiscal burden created by under-priced fuel.
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Bond tax relief may not overcome currency risk
The government’s tax concessions for foreign investors in government securities also have limits. India’s inclusion in global bond indices was meant to draw steady foreign debt flows. It did help initially. But bond investors care about total return.
If the rupee falls and bond yields rise, foreign investors suffer twice. They lose on currency conversion and on mark-to-market bond values. Tax relief improves post-tax return, but it cannot neutralise currency risk or duration risk.
This matters because the package seeks longer-duration bond flows. That is ambitious. Global yields are high. US bond yields remain attractive. A foreign investor must be compensated for locking money into Indian debt while carrying rupee risk. A withholding-tax concession may not be enough.
The state may therefore give up revenue without securing commensurate inflows. That is the old danger in all such packages: the subsidy is certain, the capital inflow is contingent.
Rupee weakness reflects structural stress
The larger point is that the rupee was weakening before the latest shock. The transcript notes that it had moved from about 83 to near 92 to the dollar over the previous year, even before the Middle East conflict intensified. That suggests the problem is not only oil or war. It is a deeper external imbalance.
India’s exports have not shown enough momentum. Net foreign direct investment has weakened. Foreign portfolio investors have lost enthusiasm for Indian equities. Private investment remains patchy. Household demand is strained. If the economy were as robust as headline GDP suggests, such repeated stimulus would not be needed.
The last year itself saw substantial support: rate cuts, liquidity infusion, GST rationalisation, income-tax changes and regulatory easing for banks. Now comes an external-sector support package. The pattern tells its own story. Policy is not dealing with a passing squall. It is firefighting a persistent mismatch between headline growth and underlying demand.
A currency can be defended for a time by reserves, swaps and incentives. It is defended durably by productivity, exports, investment and confidence.
Buy time, then reform
The RBI and the government have done what they can in the short run. The package may steady the rupee for a few weeks or months. It may bring in NRI deposits. It may reduce pressure on banks. It may help oil companies borrow abroad. It may entice some bond investors.
But it cannot change the rupee’s long-term trajectory. That will depend on export competitiveness, durable capital inflows, credible fiscal management, stronger private investment, and policy reform at the Centre and in the states.
The 2013 package worked as a bridge. It did not stop the rupee from depreciating over the next decade. The lesson is plain. Emergency windows are useful when markets panic. They are dangerous when governments mistake them for reform.
India can subsidise hedges, offer tax breaks, and expand investment limits. But the rupee will stabilise only when the economy earns enough dollars and attracts capital without inducement. Until then, every defence of the rupee will carry a bill. The only question is who pays it, and when.