How India Is Trying to Bring Foreign Investors Back After Massive FII Outflows

For quite some time now, the FIIs have been gradually withdrawing funds from the Indian markets. While there were earlier concerns about it being a short-term phenomenon, it is now becoming an issue of concern.

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Foreign Investors Withdraw ₹2.25 Lakh Crore During 2026

From the numbers quoted, one can gauge the magnitude of the problem. The FPIs withdrew ₹32,963 crore from the Indian equities market in May 2026 alone. This means that the total withdrawal during 2026 has touched ₹2.25 lakh crore mark. There have been various reasons behind such a move; poor earnings growth, rupee depreciation and uncertainty in global financial markets.

Crude Near $90 and Rupee Near ₹95 Add to the Pressure

An additional concern with respect to the current scenario is caused by the rise in crude oil prices because of geopolitical tensions in the Middle East. As the country depends heavily on oil imports, fluctuations in the price of oil in the international market affect the economy of India significantly.

Crude oil has traded over the level of $90 per barrel in recent weeks. The Indian rupee has lost its value and traded around ₹95 per dollar. The combination of these two factors leads to a significant problem for the economy.

On one hand, higher crude oil prices lead to a greater import bill for the country. On the other hand, lower values of the domestic currency result in costlier imports. Such a situation may cause problems like rising deficits and inflation, which discourage foreign investments. 

As a result, foreign investors become more cautious, particularly when other emerging markets are offering stronger growth opportunities.

Capital Moving Towards Taiwan and South Korea 

Global investors are changing their investment strategies. Capital is increasingly moving towards markets that are expected to benefit from the artificial intelligence (AI) boom. In particular, Taiwan and South Korea have attracted significant foreign inflows as investors seek exposure to semiconductor manufacturing and AI-related technologies.

How India Is Responding to the Outflow Challenge

On this note, there have been various initiatives undertaken by the Reserve Bank of India in trying to attract foreign funds in order to improve the foreign exchange inflow into the nation. Foreign investors have been selling equities in India, clearly evident from the daily FII DII data published by exchanges. These steps are designed to strengthen India's position without changing interest rates.

1. FAR Expanded to Include 15-, 30- and 40-Year Government Bonds 

One of the most significant announcements relates to India's government securities market.

The RBI has expanded the Fully Accessible Route (FAR) to include all new 15-year, 30-year and 40-year government securities. This gives foreign investors greater access to long-term Indian government bonds.

For global investors looking for stable long-duration assets, the move creates additional opportunities. At the same time, it can help broaden the investor base for government borrowing programmes.

2. Easier Rules for Foreign Portfolio Investors

The RBI has also removed investment concentration limits for Foreign Portfolio Investors (FPIs) under the general route.

While this may sound technical, the objective is straightforward. The move reduces restrictions and gives foreign investors greater flexibility when investing in Indian debt instruments.

Global investors often compare investment opportunities across countries. Simplified rules and easier market access can improve India's attractiveness as an investment destination.

3. Encouraging Overseas Indians to Invest

Another important step involves Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs).

The RBI has increased investment limits in listed Indian equities without requiring registration as an FPI. The facility has also been extended to a wider group of individuals residing outside India.

This expands the pool of potential investors who can participate in Indian markets. It also allows overseas Indians to increase their exposure to India's growth story through listed companies.

For instance, an NRI working in the United Kingdom or the United States can now invest more easily in Indian shares under the revised framework.

4. Supporting Foreign Currency Deposits

The RBI has extended support for Foreign Currency Non-Resident [FCNR(B)] deposits.

These deposits allow NRIs to place funds in foreign currencies with Indian banks. The central bank has continued full hedging-cost support for banks raising FCNR(B) deposits with maturities between three and five years.

The measure is intended to make such deposits more attractive and encourage a larger inflow of foreign currency into the banking system. Experts believe these schemes can generate substantial dollar inflows if overseas participation remains strong.

This approach is not entirely new. India adopted a similar strategy during periods of currency pressure in the past and succeeded in attracting significant foreign currency deposits.

5. Extending Support for Overseas Borrowings

The RBI has also extended the concessional foreign exchange swap facility for External Commercial Borrowings (ECBs) raised by public sector undertakings until September 30, 2026.

ECBs are loans raised from overseas lenders. By reducing hedging costs, the RBI is making overseas borrowing more attractive for eligible entities.

This can bring additional foreign currency into the country while helping companies access funding at competitive rates.

6. Export Realisation Period Cut to 9 Months from 15 Months 

Another measure focuses on export proceeds.

The RBI has restored the period for realising export earnings to 9 months from the earlier 15 months. This means exporters will have to bring their foreign exchange earnings back into India sooner.

Although the change does not directly attract new investment, it can strengthen liquidity in the foreign exchange market by improving the timing of foreign exchange inflows.

The Bigger Picture

India's latest measures come at a time when the global environment remains uncertain. Rising oil prices, geopolitical tensions and currency volatility have increased pressure.

Rather than relying solely on interest rate changes, the RBI has chosen a broader approach. The focus is on attracting capital through multiple channels, including government bonds, equity markets, NRI deposits, overseas borrowings and export earnings.

In the current context, what is very clear is that the Indian policymakers wish to retain their economy's attractiveness for international investments.