An exploratory study on measures followed by the central bank of India (RBI) in attracting FDI and FPI due to current geopolitical tensions (2026)

Abstract

Monetary policy in an economy uses instruments like repo rate, reverse repo rate to manage an economy’s external sector and inflation targets. Amidst geopolitical tensions, specifically since February 2026, India has faced heavy outflows of Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI) as investors started selling. This has impacted the economy’s balance of payment, exchange reserves, exchange rate and domestic inflation rate. All of these combined with weak domestic corporate earnings and competitive worldwide investment opportunities have worsened India’s macroeconomic indicators. To address this issue, the economy, along with traditional policy measures, has introduced the new FCNR(B) scheme (June 2026) to try and stem the outflow of FDI and FPI. This paper attempts to highlight the policy measures that contributed in making India a favourable environment for foreign investment specifically in FY2023-2024, and how policy factors adopted by the RBI can reverse the trend that India has been witnessing in terms of its flight of FIIs since 2026. This paper will study a critical analysis on policy measures followed by the RBI in addressing the current impact of geopolitical tensions