Record diaspora deposits could saddle RBI with $10.6 bn cost
Economists say India's unprecedented diaspora deposit drive may cost the Reserve Bank of India up to $10.6 bn, creating liquidity challenges.
Economists warn that India’s unprecedented diaspora fundraising effort could impose a $10.6 bn burden on the Reserve Bank of India. The special deposit scheme, opened in June to support the rupee, has drawn far more foreign-currency funds than anticipated, and when combined with foreign-currency debt and external commercial borrowings the total inflow will rise further. The RBI must provide a favorable currency-swap facility at 3-3.5% per year and absorb the rupee liquidity created when banks convert the dollars, costs that could reach ₹1.2 trillion over five years.
Analysts note that the ultimate expense will hinge on the deployment of the dollar proceeds, with possible investment in 10-year US Treasuries offsetting some outlays. A reduction in the central bank’s dividend to the government is another risk, potentially tightening fiscal space. The RBI has not commented, but reserves of about $730 bn are expected to grow, offering a buffer.
How the sides frame it
LOW AGREEMENTCenter coverage reports foreign portfolio investors pulling out billions from Indian equities and cites oil, bond yields and a strong dollar as reasons, while right-leaning coverage warns that record diaspora deposits could impose a $10.6 bn cost on the RBI and stresses the need for currency-swap facilities and liquidity absorption.
CENTER
Centrist coverage presents the FPI sell-off as a market reaction to higher oil prices, rising US yields and a firm dollar.
RIGHT
Right-leaning coverage frames the diaspora deposit scheme as a looming financial burden for the RBI that may cost up to $10.6 bn.
The right emphasises
- record diaspora fundraising effort could impose a $10.6 bn burden on the RBI
- the scheme has drawn far more foreign-currency funds than anticipated, requiring a favorable currency-swap facility at 3-3.5% per year
- costs could reach ₹1.2 trillion over five years as the RBI absorbs rupee liquidity
