Govt may bank on dollar deposit scheme for NRIs to check ₹ slide

NEW DELHI: SO FAR THIS YEAR, THE RUPEE HAS LOST 15% OF ITS VALUE VISÀVIS THE DOLLAR AND HAS BEEN AMONG THE WORST PERFORMING CURRENCIES IN EMERGING MARKETS

India is considering a dollar deposit scheme for nonresident Indians (NRIs) to stem the decline of the rupee by increasing dollar inflows, a senior official in the finance ministry said on condition of anonymity. The exact contours of the scheme are being worked out, this person added. 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.

So far this year, 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.

Meanwhile, rising interest rates in the US have triggered capital outflows, eroding foreign exchange reserves and increasing pressure on the rupee.

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. Such schemes – they have been used in the past as well – provide a cushion to the value of the rupee by bringing in foreign currency for a stipulated period of time, unlike hot money flows that can move out any time.

To be sure, they also entail an additional cost in terms of interest payments, as they carry a premium vis-à-vis the market rates.

There are three major instances of such a scheme being launched in the post-reform period.