Saturday, 28 May, 2022
HomeEconomyModi govt keeps plan B ready to support rupee but in no...

Modi govt keeps plan B ready to support rupee but in no hurry to implement it

Text Size:

Government is looking at raising funds through NRI bonds if rupee slides further but will junk idea if situation stabilises

New Delhi: The Narendra Modi government is in no hurry to turn to NRIs to rescue the sliding rupee, which touched an all-time low of 72.91 to a dollar last week.

The government, however, does have NRIs in its contingency plans in case the rupee depreciates further.

Finance ministry sources said the government may look at raising funds through NRI bonds but will only float these bonds if the rupee slides drastically.

The idea, they said, will be aborted in case volatility reduces and the rupee maintains its current level.

“The government is looking at keeping the option ready but in case volatility reduces and rupee to dollar level more or less remains where it is, we will not resort to this (raising funds through NRI bonds),” an official source, who did not wish to be identified told The Print.

Also read: After April high, India’s forex reserves fall below $400 billion mark

NRI bonds, which are much like other bonds, offer incentives to non-resident Indians and carry a guarantee by RBI. If the measure is implemented, the Reserve Bank of India will have to take the lead in pushing through the exercise.

The government, sources said, may also be open to issuing foreign currency non-resident (FCNR) bonds, which was last done in September 2013 when Raghuram Rajan was governor of RBI.

Prime Minister Narendra Modi, meanwhile, held back-to-back meetings during the weekend to review the economic situation.

Policymakers divided on issue

Sources said the government also sought the opinion of independent analysts on floating NRI bonds.

Policymakers are divided on the issue, with a section of the view that there is no need to support the rupee at this point.

“The government should refrain from resorting to any such action… The rupee was overvalued and the current level is absolutely fine, the only problem is volatility that is being caused due to external factors,” D.K. Joshi, chief economist, Crisil said.

“RBI has been intervening to arrest this trend and it has used a small part of the forex reserves but I don’t see any problem in that as it is meant to be used for these,” he added.

Also read: The fall of the Rupee shows India has been ‘swimming naked’

Joshi was referring to the foreign exchange reserves dropping below the $400 billion level Friday, a result of the central bank aggressively supporting the rupee.

The rupee, which is the worst performing Asian currency, has lost over 11 per cent in 2018. In contrast, China’s exchange rate has depreciated by 5.2 per cent while Malaysia’s has by 2.7 per cent and in Thailand, it is a mere 0.6 per cent.

Subscribe to our channels on YouTube & Telegram

Why news media is in crisis & How you can fix it

India needs free, fair, non-hyphenated and questioning journalism even more as it faces multiple crises.

But the news media is in a crisis of its own. There have been brutal layoffs and pay-cuts. The best of journalism is shrinking, yielding to crude prime-time spectacle.

ThePrint has the finest young reporters, columnists and editors working for it. Sustaining journalism of this quality needs smart and thinking people like you to pay for it. Whether you live in India or overseas, you can do it here.

Support Our Journalism


  1. NRI Bonds interest rate will OBVIOUSLY be very high,when India’s US Treasury Holdings of US Dollars 148 Billion fetches a measly 2.85 percent.It is better to withdraw the necessary amount from the above US Treasury Holdings. Similarly the Rs 1.3 trillion Bond forces India to give an interest of 7.5 to 8.1 percent,while getting 2.85 percent for its US Treasury Holdings.This is equal to a LOSS Rs 6000 Crores per annum. It is better to get this amount also from the US treasury Holdings and cancel the Bond Issue till such time,when the rates equalize.

  2. Issue of NRI bonds is not required at this stage. Forex reserves are about $ 400 billion. Not the situation India faced in 1991 or Pakistan does today. The RBI ought not to have used up part of its reserves to defend the rupee, beyond a little evening out of volatility. The sharp depreciation of INR this year, when the currencies of Thailand, even China, have weathered the storm points to our inability to pay for imports with exports. FPIs are negative this year, about $ 7 billion so far. With Goldman Sachs saying that our equities are overvalued, the act of borrowing today to pay for the day after will become more difficult. One cannot expect the government to do in its last six months the sort of reformist work it ought to have been doing so far, but the agenda for the next government is being drafted.

Comments are closed.

Most Popular