India has attracted about $73 billion in foreign-currency inflows over the past 11 weeks, with a special deposit scheme for non-resident Indians (NRIs) accounting for the bulk of the funds and helping ease pressure on the rupee.
The inflows are part of efforts by New Delhi and the Reserve Bank of India (RBI) to strengthen the country’s external buffers as higher energy prices, a widening trade deficit and sustained foreign portfolio outflows weigh on the currency.
More than $65 billion of the funds have flowed into Foreign Currency Non-Resident (Bank) deposits, according to India’s finance ministry. The government has described the programme as its “largest and fastest foreign-currency mobilisation exercise.”
The scheme, launched in June, offers incentives on foreign-currency deposits by NRIs, overseas foreign-currency borrowings and external commercial borrowings. The incentives are due to expire on August 31, with Nomura estimating that deposits could climb to nearly $80 billion before the deadline.
Gaura Sengupta, chief economist at India’s IDFC First Bank, said the inflows had helped keep the rupee relatively stable despite the recent surge in energy prices. The additional foreign currency has also given the RBI greater room to intervene in the market and limit excessive volatility.
The RBI, however, is seeking to contain volatility rather than determine the rupee’s direction, Sengupta said. IDFC First Bank expects the currency to settle at around 96.50 rupees per dollar by March 2027, compared with about 95.7 on Tuesday.
India used a similar strategy in 2013, when it attracted about $26 billion over three months. The finance ministry said the latest inflows have strengthened the country’s external buffers at relatively low cost.
The measures come as India faces mounting pressure from capital outflows and a growing trade deficit. Foreign investors sold a record $12.7 billion of Indian equities in March, while their net equity sales have reached about $24.5 billion so far this year, compared with $18.9 billion in all of last year.
India’s trade deficit also widened to $49.3 billion between April and July, from $32.3 billion during the same period a year earlier. Energy imports, which account for more than a quarter of the country’s total imports, increased by nearly 22% during the period.
The pressure has left the rupee among Asia’s weakest-performing currencies against the dollar, with the currency down about 6.5% since the start of the year.
Jefferies said the latest foreign-currency inflows had exceeded expectations and could, when combined, raise as much as $100 billion by the end of August.
Citi expects India to post a balance-of-payments surplus of about $53 billion in the financial year ending March 2027, down from $60 billion a year earlier. The bank warned, however, that once the deposit incentives expire, India’s external position will become more dependent on oil prices and inflows of foreign direct and portfolio investment.
With the special scheme nearing its end, the durability of the rupee’s recent stability will therefore depend on whether India can replace the temporary foreign-currency boost with more sustainable capital inflows.
