The government and the Reserve Bank of India are debating introduction of a new scheme to mobilise foreign exchange deposits from non-resident Indians (NRIs) and overseas investors to stem the rupee’s slide and boost dollar inflows into India.
The scheme, sources indicated, could be modelled on the Resurgent India Bond of 1998 and India Millennium Deposit of 2000 that sought to channelise NRI savings into India. The two measures had mobilised $10 billion or about 6% of the country’s current foreign exchange reserves.
The rupee, which hit a record low of 57.32 against the dollar on Friday, has slid 12% since March. A weak rupee has stoked inflation by knocking up prices of most imported goods, including crude oil.
Besides making overseas travel and education costlier, a depreciating rupee is also a warning sign of dipping investor sentiments.
Policy uncertainties such as the provision to empower taxmen to scrutinise older corporate deals have sparked fears among global and domestic investors and prompted foreign institutional investors to cash out from India and dive into safer investment bets.
Economists said immediate measures were needed to prop up the rupee. “India could clamp down on gold imports or issue a global dollar bond similar to the Resurgent India Bond and India Millennium Deposit,” said Rajeev Malik, senior economist at independent equity brokers CLSA.
“The most important policies required to prop up the rupee are to contain the current account deficit and enable foreign investment inflow,” said M Govinda Rao, director of the National Institute of Public Finance and Policy and member of the PM’s Economic Advisory Council.