Mumbai (Maharashtra) [India], June 8 (ANI): The recent measures announced by the Reserve Bank of India (RBI) and the government to attract foreign capital could bring inflows of around USD 35-40 billion, helping bridge India's anticipated balance of payments (BoP) gap in FY27 and strengthening foreign exchange reserves, according to a report by Yes Bank.

The report said the measures are aimed at incentivising foreign capital inflows into India at a time when the country is seeking to contain pressure on the rupee and improve external sector stability.

It stated, 'While it is difficult to exactly pin down the quantum of inflows, a USD 35-40 bn may be a decent bet, enough to close the anticipated BoP gap for FY27'.

The report noted that a stronger inflow of foreign capital would also help increase the RBI's foreign exchange reserves, giving the central bank greater capacity to manage depreciation pressures on the rupee.

Among the various measures announced, the report highlighted incentives related to Foreign Currency Non-Resident (Bank) or FCNR(B) deposits as a major source of potential inflows.

The RBI has removed Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) requirements on FCNR(B) deposits and has also agreed to bear hedging costs on 3-5 year FCNR(B) deposits raised by authorised dealer banks.

According to the report, these incentives, combined with leveraging facilities, could attract around USD 35-40 billion through FCNR(B) deposits.

The report added that External Commercial Borrowing (ECB) inflows may also increase following the latest measures, although the extent of fresh inflows is expected to be lower at around USD 4-5 billion.

To encourage foreign investment in government securities, the RBI and the government have on Friday announced several regulatory and tax-related changes.

The government has also reduced the long-term capital gains tax on government securities for foreign investors to nil from 12.5 per cent and removed the 20 per cent withholding tax.

Under the Fully Accessible Route (FAR), foreign portfolio investors (FPIs) will now be allowed to invest in government securities with maturities of 15, 30 and 40 years.

The report also noted that restrictions relating to short-term investments, concentration limits and security-wise limits under the General Route for FPI investments in government securities have been removed.

In addition, limits on investments by Non-Resident Indians (NRIs), Overseas Citizens of India (OCIs) and Persons Resident Outside India (PROIs) in equity instruments without SEBI registration have been increased.

According to Yes Bank, these measures should make Indian government securities more attractive to foreign investors and support higher capital inflows over time. (ANI)