India Weighs Additional Steps to Attract Foreign Capital Inflows

India is considering additional measures to boost foreign capital inflows as it seeks to strengthen external finances and support investments, a government official said on Tuesday.

The government is working to deepen the bond market, the official told reporters in New Delhi, asking not to be identified as the discussions were private. The person did not give details of the measures being explored.

The comments come after the government and central bank unveiled a coordinated effort last week to attract foreign capital and support the rupee as higher energy costs strain India’s external finances. Authorities eased investment rules and offered tax incentives to boost foreign inflows and reduce pressure on the currency, which is among Asia’s worst performers this year.

Apart from attracting flows, India is also keen to be included in the Bloomberg Aggregate Bond Index, according to the official. It entered the JPMorgan Chase & Co.’s emerging-market debt index in 2024.

Index inclusion is closely watched because it can draw billions of dollars from global investors, lowering borrowing costs and providing a steady source of foreign inflows. While Indian sovereign bonds are already part of major emerging-market debt indexes, joining broader global benchmarks would deepen the country’s integration with international financial markets.

Bloomberg LP is the parent company of Bloomberg Index Services Ltd., which administers indexes that compete with other providers.

The measures have already triggered a rally in the bond market as global funds bought into index-eligible securities.

Further, the government is also discussing measures to attract net foreign direct investment inflows into the country, the official said.

As such, rising crude oil prices and the closure of the Strait of Hormuz due to the Iran war has prompted the fertilizer ministry to seek twice the budgeted amount, the official said. India has budgeted 1.71 trillion rupees for fertilizer subsidies in the fiscal year ending March 2027, the official said.

The government has also forgone 1.23 trillion rupees on account of excise cut on fuel, and would reassess spending priorities in the second half of the fiscal year, the official said, adding that the move to ramp up asset sales would partly offset additional subsidy spending. The government is aiming to exceed its 800 billion rupee target for the current year, the official added.

In the last few weeks, New Delhi announced a series of stake sales in Central Bank of India, Coal India, NHPC and NLC India Ltd. Officials also remain confident about pushing through IDBI Bank privatization this year. Indian authorities are considering cutting the reserve price for IDBI Bank by up to 20% after a lack of buyer interest stalled efforts to sell a majority stake in the lender, Bloomberg News reported last month.