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The India Briefing

India’s June policy package: unlocking flows without stretching the balance sheet

This month, we take a look at recent policy developments and potential capital impacts for capital markets.

Please find below our latest thoughts on India:

  • June has been a markedly better month for India equities. Easing tensions in the Middle East and the associated decline in oil and gas prices have alleviated a key macro headwind, particularly given India’s external deficit, which is heavily driven by energy imports.
  • This was met with further India-US trade discussion, with Modi and Trump meeting on the sidelines of the G7 Summit in France and US Trade Representative Jamieson Greer visiting New Delhi later in the month.
  • These shifts stood out despite monsoon risk, with India currently experiencing the driest June in over a century and possible El Niño developments between now and September, which historically weaken the monsoon.
  • The recovery has been further supported by a comprehensive five-part policy package rolled out by the Reserve Bank of India (RBI) early in the month. This comes on top of a unanimous vote to hold the repo rate at 5.25% and retain a neutral stance.
  • In our view, this package represents one of the most elegantly engineered capital account interventions in India’s history. The framework simultaneously supports the currency, rebuilds FX reserves, finances the external account, and accelerates India’s integration into global bond market indices.
  • At its core, the package aims to stabilise the currency without drawing down reserves or tightening domestic liquidity, thereby preserving growth momentum in a slowing global environment.
  • Its design draws on India’s 2013 Foreign Currency Non-Resident (FCNR) mobilisation programme, which attracted USD 34bn in inflows from Non-Resident Indians (NRI) living overseas and helped defend the rupee during the taper tantrum.
  • The current iteration is, in our view, broader, more flexible, and better executed, reflecting both a stronger macro starting point and a more sophisticated policy toolkit on behalf of the RBI.
  • With significantly improved outreach to the Indian global diaspora via social media and digital channels since 2013, repatriation estimates for this new scheme are as high as USD 50bn by the end of September, when the programme is set to conclude.1
  • NRI inflows (remittances + deposits) matter because they are India’s largest source of foreign capital, exceeding both foreign direct investment and foreign portfolio inflows. NRI flows also tend to be stickier.
  • The scale is substantial, as there are over 17mn NRIs globally. In 2025, remittances reached USD 158bn (~3.9% of GDP), more than offsetting India’s oil import bill of USD 137bn.2,3
  • A key differentiator versus the 2013 package is that the central bank will absorb the hedging costs on FCNR deposits, in addition to relaxing reserve requirements. The net effect is that the scheme materially lowers banks’ funding costs without compromising margins.
  • The impact is already evident in market pricing on the ground, with FCNR bank deposit rates quickly rising from ~3% to 6–7%, positioning India as a compelling destination for yield-seekers and arbitrage-driven capital.4
  • In parallel, deeper bond market liberalisation – including the introduction of tax-free returns on eligible government securities and expanded access to foreigners under the Fully Accessible Route (FAR) – is designed to accelerate India’s inclusion in major global bond indices.
  • In a bullish scenario, India’s inclusion in the Bloomberg Global Aggregate could deliver close to USD 25bn of passive flows.5
  • Against an already strong FX reserve base (USD 691bn), inflows of this magnitude from both NRI channels and bond investment would further strengthen India’s external resilience and policy flexibility.6
  • For investors, the signal from this policy package is clear: the RBI is willing – and able – to deploy innovative, market-friendly tools to safeguard macro stability.
  • It also reinforces a constructive medium-term outlook for flows into India’s debt markets and deposit base, naturally raising the question of spillover effects for equities. Will this also be a catalyst to revive equity flows?
  • After maintaining a long-standing overweight (from 2007–2023), active positioning among global emerging markets equity (GEM) funds has moved to a meaningful underweight in India, with allocations now at multi-decade lows.7
Figure 2: India underweight in GEM funds at 24-year lows (bps)
Line chart showing India underweight position in global emerging market equity funds reaching a 24-year low in 2026.

Source: Citibank, as of 10 June 2026

  • In our experience, equity opportunities tend to emerge when sentiment has capitulated and fundamentals are beginning to turn. India today increasingly exhibits that dynamic.

1 The Economic Times, To drive up NRI investments, banks make FCNR deposits attractive with up to 7.1% return on dollar deposits, as of 15 June 2026.
2 Ministry of External Affairs, Population of Overseas Indians, as of January 2026.
3 Financial Express, Crude oil imports bill up 2.7% to USD 137 billion in FY25, as of 18 April 2025.
4 The Economic Times, Major Banks Increase FCNR (B) Deposit Rates to 7% Following RBI Measures, ETBFSI, as of 11 June 2026.
5 Business Standard, What is Bloomberg Global Aggregate Bond Index, and why it matters to India, as of 8 June 2026.
6 RBI, Half Yearly Report on Management of Foreign Exchange Reserves: October 2025 - March 2026, as of 30 April 2026.
7 Citibank, EM Index Wt. at ~5 yr low & Significant FII UW; Key Debates, as of 10 June 2026.

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