India is considering a dollar deposit scheme for non-resident Indians (NRIs) to stem the decline of the rupee by increasing dollar inflows. The exact contours of the scheme are being worked out.
Importantly, this is the first time a government official has admitted that the government is seriously considering such a move, although there has been wide speculation on this front.
The rising interest rates in the US have triggered capital outflows, eroding foreign exchange reserves and increasing pressure on the rupee. The rupee has lost 15% of its value vis-à-vis the dollar and has been among the worst performing currencies in emerging markets. The falling rupee, rising crude oil prices (which pinch even more because India imports 80% of its oil requirements) and an uncertain export outlook because of a looming trade war have caused trade deficit to widen.
According to an official statement, India’s reserves position was comfortable and authorities could take measures such as tapping overseas Indians and other moves to plug the current account gap. The proposal for the NRI dollar deposit scheme follows the Centre increasing tariffs on a range of goods and the Reserve Bank of India easing regulations on raising of money from foreign markets. In 2013, the central bank lured inflows of about $34 billion through discounted foreign-currency swaps, helping lift the rupee from a record low.