India has attracted nearly $73 billion in foreign-currency inflows through the Reserve Bank of India’s (RBI) special measures, but the rupee has continued to remain weak near the 95-96 per dollar level. 

The large inflows have strengthened India’s external liquidity position, but the RBI has largely used the incoming dollars to build foreign-exchange buffers rather than allowing the rupee to appreciate sharply.

The inflows have primarily come through the RBI’s Foreign Currency Non-Resident (Bank), or FCNR(B), deposit scheme. As of August 21, authorised dealer banks had raised around $72.85 billion, of which about $65.40 billion came through FCNR(B) deposits. 

Another $7.45 billion was raised through external commercial borrowings and overseas foreign-currency borrowings under the RBI’s swap facility.

The RBI introduced the measures to attract overseas dollars and strengthen India’s balance of payments at a time when the rupee has been facing pressure from elevated crude oil prices, geopolitical uncertainty and foreign investor flows. 

The central bank’s swap facility reduces the hedging cost for banks raising eligible FCNR(B) deposits, making it more attractive for banks to bring foreign currency into the country.

However, the surge in foreign currency has not translated into a major appreciation in the rupee. The currency has remained close to Rs 95-96 against the US dollar, with the RBI intervening in the forex market to limit volatility. On August 25, the rupee opened at Rs 95.73 per dollar, compared with the previous close of Rs 95.75.

One reason is that the RBI appears to be using the additional dollar liquidity to strengthen its foreign-exchange reserves and external buffers rather than allowing the entire inflow to push the rupee higher. The strategy gives the central bank greater capacity to intervene if the currency comes under renewed pressure from higher oil prices or global risk aversion.

The timing is important because India’s external sector is facing pressure from expensive energy imports. Brent crude was trading around $92 a barrel on August 25, while WTI was near $85, with markets continuing to monitor supply risks linked to the Iran conflict and disruptions around the Strait of Hormuz. 

Higher crude prices increase India’s import bill and create additional demand for dollars, limiting the positive impact of foreign inflows on the rupee.

The strong inflows nevertheless provide a significant cushion for the Indian economy. Earlier estimates from SBI Research suggested that RBI measures could attract $55-65 billion during FY27, while the actual inflows have already moved above that range. The larger-than-expected response gives India additional protection against external shocks and can improve liquidity conditions for banks and companies that require foreign currency.

Foreign portfolio flows have also shown signs of improvement. FPIs invested around $2.5 billion across Indian equity and debt markets during the first 10 days of July, including roughly $1.6 billion in equities, marking a reversal after several months of heavy selling. 

However, sustained foreign investment will remain important if India is to see stronger and more durable support for the rupee.

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