India’s government has stepped up efforts to attract foreign currency deposits from overseas Indians as the rupee remains under pressure and the country’s foreign exchange reserves continue to decline. Finance Minister Nirmala Sitharaman has urged state-owned banks to intensify outreach to the Indian diaspora in a bid to increase foreign currency inflows and support the domestic currency.
According to a government statement, Sitharaman called on banks to strengthen their engagement with overseas Indians during a meeting on Monday with the heads of state-run banks and public financial institutions. The appeal comes as the government seeks to counter pressure on the rupee, which has weakened by more than 6% against the U.S. dollar this year, making it one of Asia’s weakest-performing currencies. Higher oil prices linked to the conflict involving Iran have increased India’s energy import costs and added to pressure on the currency.
The government’s push follows a series of measures announced by the Reserve Bank of India (RBI) last month to encourage foreign currency deposits from non-resident Indians. The central bank agreed to absorb the cost of hedging three- to five-year foreign currency deposits, enabling banks to offer higher interest rates on such accounts. Under the temporary programme, which will remain in place for the next few months, banks can offer deposit rates of up to 7.5%.
Economists at UBS have estimated that the RBI’s measures could attract as much as $60 billion in additional inflows, helping to stabilise the rupee. Alongside the deposit programme, the central bank has also taken steps to make it more difficult for investors to short the currency by restricting open positions in the rupee and certain derivative instruments.
The measures come as India’s foreign exchange reserves have fallen by $54 billion since the start of the war involving Iran, reducing the country’s buffer against external market pressures. The decline in reserves has coincided with rising energy prices, which have increased demand for foreign currency to finance imports.
During Monday’s meeting, executives from state-run banks told Sitharaman and other government officials that the deposit programme had received what they described as an encouraging response from overseas Indians. According to the government, lenders reported significant interest from members of the Indian diaspora living in the Middle East, Hong Kong, Singapore, the United Kingdom and the United States. The government estimates the global Indian diaspora numbers about 37 million people.
The initiative mirrors a similar programme launched in 2013, when India raised approximately $34 billion in foreign currency deposits to counter capital outflows triggered by the global market turmoil known as the “taper tantrum.” Sitharaman also urged state-run banks to expand the use of Gujarat International Finance Tec-City (GIFT City), India’s offshore financial centre in Gujarat, to raise additional overseas funding.
Despite the policy measures, analysts said renewed strength in oil prices has complicated the outlook for the rupee. Radhika Rao, senior economist at DBS Bank, said a rebound in oil prices following a new round of U.S. strikes against Iran had clouded the near-term prospects for appreciation of the Indian currency.
Economic conditions have also become more challenging as inflationary pressures increase. India’s annual inflation rate rose to 4.4% in June from 3.9% in May, reaching its highest level in 18 months and moving above the RBI’s 4% target after retail fuel prices were increased. At the same time, a weaker-than-usual monsoon season has raised concerns about agricultural output and food prices. Against that backdrop, some economists expect the RBI to raise interest rates at its monetary policy meeting in early August. Shilan Shah, deputy chief emerging markets economist at Capital Economics, said the central bank could increase rates by a total of 0.75 percentage points to 6% by early 2027 as inflationary pressures continue to build.
