Sense in PM-EAC meeting: Moves to attract foreign funds can get $70 billion

THE STEPS taken by the government and the Reserve Bank of India on Friday are likely to attract around $70 billion in foreign funds, according to the discussions at the meeting of the Economic Advisory Council chaired by Prime Minister Narendra Modi on Saturday.

While the Ministry of Finance did away with the tax on long-term and short-term capital gains as well as the withholding tax on investment by FIIs in government bonds, the RBI made it easier for banks to mobilise foreign deposits and for PSUs to raise external commercial borrowings.

The inflow of a sizable portion of foreign funds is contingent on the inclusion of government bonds in the Bloomberg Global Aggregate Bond Index. This is crucial to attracting passive investment flows; several global funds track the weight a certain country has in these bond indices, and invest accordingly. The inflows into the government debt market helps lower the interest paid by the Centre on its borrowings.

After the meeting, Prime Minister Narendra Modi, who chaired the meeting said on social media platform X, “Deliberated on a wide range of issues relating to India’s economic transformation and long-term development priorities. Also shared perspectives on adding more momentum to the reforms journey and ensuring ‘Ease of Living’ as well as ‘Ease of Doing Business’.”

According to a source, who did not wish to be named, while there wasn’t much concern around the West Asia crisis, a key discussion point revolved around the impact of El Nino and sub-par rainfall as forecast by the India Meteorological Department. “How can India reduce its vulnerability due to the vagaries of the monsoon — this was also discussed,” the source said.

Economists are of the opinion that Friday’s decision to scrap the short-term and long-term capital gains tax on investments by Foreign Institutional Investors (FIIs) in government bonds as well as the withholding tax they must pay on their interest income from these debt instruments, will likely accelerate the inclusion of Indian sovereign debt in the Bloomberg Global Aggregate Bond Index. This alone could result in $20-25 billion inflows over the 10 months.

In recent years, government debt — the bonds it issues to borrow money from the market to cover its fiscal deficit, or the difference between its income and expenditure — has been added to multiple global bond indices. This began with JPMorgan adding India to its emerging market index beginning June 2024. Subsequently, Bloomberg included India in its Emerging Market Local Currency Index from January 2025 and FTSE Russell to a similar one from September 2025.

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“Bloomberg index inclusion, I believe, is on the verge of happening,” a bond market participant told The Indian Express.

In mid-January, Bloomberg Index Services Ltd (BISL) had deferred the inclusion of Indian government bonds into its flagship global index, saying it will provide another update by mid-2026. “Overall, responses indicated broad support for the long-term trajectory of the Indian government bond market and for its potential eventual inclusion in global investment grade benchmarks,” BISL had said in a statement on January 13. “At the same time, a number of respondents highlighted important operational and market-infrastructure considerations that merit further evaluation before inclusion in a flagship global investment grade index.”

In addition to the removal of taxes on FIIs, Friday also saw the RBI announce several measures to boost foreign inflows, including a temporary concessional forex swap facility for Public Sector Undertakings for their External Commercial Borrowings and the revival of the wildly successful Foreign Currency Non-Resident (Bank) Deposits scheme of 2013, with the central bank bearing the full exchange rate hedging cost. The latter, which is also a temporary measure, had helped raise $26 billion in late 2013 as India battled the US Federal Reserve’s taper tantrums.

According to sources, the Economic Advisory Council to the Prime Minister (EAC-PM) also took note of the better-than-expected GDP growth data for 2025-26. Data released on Friday showed that India’s GDP grew by 7.8% in January-March 2026, well above consensus estimates of closer to 7%, despite the West Asia war overlapping with the final month of the quarter. This helped push up the provisional estimate of full-year growth to 7.7%, 10 basis points higher than the second advance estimate of 7.6%.

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“The growth numbers are supportive of the positive sentiment,” a person aware of the discussions said.

The meeting of the EAC-PM, which includes Chairman S Mahendra Dev and three full-time members as well as 11 part-time members, was also attended by PK Mishra and Shaktikanta Das, the PM’s Principal Secretaries.