India is making a concerted push to attract significant foreign direct investment (FDI) through a new trade agreement with the United States and a proposed liberalization of its banking sector. An interim trade deal between the two economic powers is poised to boost capital inflows and reverse recent outflows of foreign portfolio investment, according to a report from ET Now.

 

The agreement will see the U.S. lift a 50% tariff on certain Indian exports, while India will reciprocate by lowering duties on some American goods. Mihir Vora, Chief Investment Officer at Trust Mutual Fund, told ET Now that the deal has the potential to catalyze FDI, noting that delays in its finalization had contributed to the underperformance of Indian markets. U.S. Trade Ambassador Jamieson Greer stated the agreement is “unlocking one of the largest economies in the world for American workers and producers.” In return for the tariff removal, the U.S. will apply a reciprocal tariff rate of 18% on various goods from India.

 

In a parallel move to attract foreign capital, India’s Finance Ministry is considering a significant policy shift for its public sector banks (PSBs). According to a report from Upstox, inter-ministerial consultations are underway to raise the FDI limit in PSBs from the current 20% to 49%. Financial Services Secretary M Nagaraju confirmed the discussions, which are aimed at strengthening the capital base of these state-owned banks. This proposed change would bring the FDI ceiling for PSBs closer to that of private sector banks, where foreign investment of up to 74% is already permitted.

 

Taken together, the U.S. trade pact and the potential banking reforms signal a clear and aggressive strategy from New Delhi to enhance market stability and create a more attractive environment for foreign investors. The dual-pronged approach—improving international trade terms while simultaneously easing domestic investment rules—is designed to unlock new streams of capital for one of the world’s fastest-growing economies.

 

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