Trade pacts boost foreign inflows and strengthen Indian rupee, says RBI

Foreign portfolio inflows and the rupee have strengthened following India’s free trade deal with the European Union and an interim trade deal with the United States, the Reserve Bank of India said in its monthly bulletin on Friday.Foreign portfolio investments into India recorded net outflows of $5.8 billion between April 2025 and February 3, 2026.

However, the Indian rupee, which depreciated against the US dollar in January due to outflows and uncertainty over the India-US deal, recovered as net foreign portfolio flows turned positive in February.

The central bank recognized the government’s budget commitments, including lowering the fiscal deficit target and boosting capital expenditure for economic growth.

In the annual budget, New Delhi cut its fiscal deficit target to 4.3% of GDP for the next fiscal from 4.4% this year, while increasing capital expenditure to a record 12.2 trillion rupees ($134 billion). In addition, long-term loans to states for capital expenditure were increased by 23%.

“The gradual reduction in the fiscal deficit, coupled with a continued emphasis on capital expenditure, is expected to attract private investment and improve productive capacity,” the RBI said.

“Support to states for capital investments is also likely to strengthen subnational growth and infrastructure development.”

The bulletin reiterated that the near-term economic outlook for India remains favorable, supported by high growth momentum, subdued inflation and a supportive fiscal environment, while inflation is expected to remain near the central bank’s target, promoting a positive growth-inflation balance. ($1 = 90.9700 Indian Rupees)