Trade pacts boost foreign inflows, lift Indian rupee, RBI says

Foreign portfolio inflows and the rupee have ​strengthened after India's free trade agreement 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 investment to India recorded net ​outflows of $5.8 billion between April 2025 and February 3, 2026.

However, the Indian ​rupee, which depreciated against the U.S. dollar in January amid outflows and uncertainty regarding the India-U.S. agreement, recovered as ​net foreign portfolio flows turned positive in ⁠February.


The central ‌bank acknowledged the government's fiscal commitment, including ​a lower ​fiscal deficit target while boosting capital expenditure for ⁠economic growth.

In the annual budget, New Delhi ​reduced the fiscal deficit target to 4.3% of ​GDP for the next financial year from 4.4% this year, while increasing capital expenditure to a record 12.2 trillion rupees ($134 billion). Additionally, long-term loans to states for capital spending were raised 23%.

"The gradual reduction in the fiscal ‌deficit, combined with a sustained emphasis on capital expenditure, is expected to crowd in private investment ​and improve ​productive capacity," the RBI ⁠said.

"Support to states for capital investment is also likely to reinforce subnational growth and infrastructure development."

The bulletin reiterated that India's ​near-term economic outlook remains favourable, backed by high growth momentum, subdued inflation, and a supportive fiscal environment, while inflation is expected to remain near the central bank's target, fostering a positive growth-inflation balance. ($1 = 90.9700 Indian rupees)