At a time when the rupee hovers around the 70-mark against the dollar, a clamour for NRI bonds has grown.
In the summer of 2013, the Reserve Bank of India (RBI) had launched NRI bonds and garnered $30 billion to curb the rupee weakness.
Analysts favouring issuing of NRI bonds claim the widening current account deficit, caused by higher imports over exports, can be bridged with dollar inflows from foreign nationals in the form of business capital. Arguing further, analysts state that foreign portfolio investors (FPI) have offloaded nearly Rs 39,000 crore in 2018 till 26 August.
However, the current scenario is a complete contrast of the economic situation in 2013. The RBI currently holds more than $400 billion in its foreign reserves, much higher than the levels in 2013. More importantly, unlike the domestic political situation in 2013, the recent weakness in the rupee is majorly caused by global geo-political factors including the rise in crude oil prices.
The current account deficit (CAD) currently at 2.4 per cent is expected to reach 2.5 per cent in FY19, while in 2013 the CAD had breached 4.8 per cent of GDP.
Though the probability is less, the RBI could also encourage exports by providing sops to curb the situation.
Meanwhile, about $222 billion of short-term external debt will be maturing by March 2019, strengthening the case for the RBI to release NRI bonds. Short term external debt maturing by March 2019 is almost 55.4 per cent of the current forex reserves, slightly lower than the levels of 2013 when it was 60 per cent.
To prevent the rupee from sinking further, the RBI should clarify to the market its plans to get dollar inflows to repay the external debt.
The author is a fundamental research analyst at Karvy Forex and Currencies Pvt Ltd