India relaxed restrictions on foreign portfolio investment introduced only last year as fears grew on Monday that foreign funds were fast retreating from the emerging market.

The shift in policy came as the Bombay Stock Exchange’s benchmark Sensex index dropped 6 per cent to 11,801, the first time it had fallen below the 12,000 mark for two years. The rupee fell to a 5½-year low at rupees 47.07 to the US dollar.