RBI has a playbook for a stronger rupee

Another significant reform is the structural overhaul of the government securities (G-Sec) market. By exempting foreign institutional investors (FIIs) from income tax on interest and capital gains from G-Secs, effective April 1, the government has removed a longstanding withholding tax that discouraged overseas participation while helping reduce borrowing costs. With commercial banks, insurers and the RBI holding nearly 75 per cent of outstanding government securities, India’s bond market has long lacked global depth. Eliminating this tax friction makes Indian sovereign debt more competitive with US Treasuries and Japanese government bonds, placing it on a stronger global footing. The reform strengthens India’s case for inclusion in major global bond indices, ensuring sustained institutional inflows. Extending similar tax parity to the Bank for International Settlements further enhances India’s credibility with central banks and sovereign wealth funds.

India is witnessing a surge in domestic investment, with private sector capital expenditure rising 67 per cent year-on-year in September 2025 and commercial credit expanding by 15 per cent. Sustaining this momentum without crowding out private investment requires a deep and liquid sovereign debt market. A broader global investor base improves price discovery, enhances competition and lowers the government’s borrowing costs by compressing term premia. Lower sovereign yields also establish more efficient benchmark rates, reducing the cost of corporate borrowing. Together, these reforms strengthen the rupee’s medium-term prospects by attracting stable foreign capital and reinforcing India’s long-term growth and macroeconomic stability.

Deb is chief economist, Chief Minister’s Secretariat, Government of Assam. Dutta is Mukherjee Fellow, Policy Politics and Governance Foundation