New measures announced by the Reserve Bank of India (RBI) and the government are expected to significantly boost foreign capital inflows, helping India finance its current account deficit (CAD). Chief Economic Advisor (CEA) V Anantha Nageswaran confirmed on Friday that these steps, including tax exemptions for foreign investors in government securities, are vital for economic stability.
Strategies to Attract Foreign Capital
The RBI and the Finance Ministry unveiled a series of initiatives aimed at drawing foreign capital and alleviating pressure on the Indian rupee. A key measure involves providing tax exemptions on capital gains and interest earned from investments in government securities by foreign institutional investors. Nageswaran emphasized that while the exact impact on the CAD for the current financial year (FY27) is difficult to estimate, these efforts will undoubtedly contribute to its financing.
Economic Resilience Amid Global Challenges
Despite ongoing global uncertainties, particularly the crisis in West Asia, India's domestic economy has demonstrated resilience in the initial two months of FY27 (April-May 2026). Nageswaran noted that India's exports have remained robust. However, he cautioned that emerging global headwinds could gradually affect specific segments of economic activity, and a forecast of a below-average monsoon might impact disposable incomes and private consumption.
Growth Projections and Structural Reforms
The CEA's comments followed the release of GDP estimates for the fourth quarter of FY26 and the full fiscal year 2025-26, which revealed a faster-than-anticipated economic growth of 7.7% for the full year, despite a slight slowdown to 7.8% in Q4 from over 8% in previous quarters. The RBI has projected GDP growth for FY27 at 6.6% and retail inflation at 5.1%.
Nageswaran underscored the importance of continuing structural reforms during this period of global uncertainty. Such reforms, which could include measures to lower the cost of doing business, are crucial for strengthening India's economic foundations and positioning the country for sustained high growth in the years ahead. He also suggested that the government might undertake further actions to mitigate the economic impact of the West Asia crisis.
Historical Context of CAD
India's current account deficit stood at 2% of GDP in FY23, a period marked by a significant spike in crude oil prices during the first six months of the Russia-Ukraine conflict. The current measures are designed to preempt similar pressures and ensure a stable flow of foreign capital into the economy.