Home / Business and Economy / RBI Shuns NRI Window for Structural Reforms
RBI Shuns NRI Window for Structural Reforms
23 Mar
Summary
- RBI prefers structural tools over NRI deposit window.
- Liquidity stress evident as deposit growth lags credit.
- Market seeks tax relief, RBI focuses on FDI and ECB inflows.
India's financial markets are experiencing significant liquidity stress, characterized by deposit growth lagging behind credit expansion. Banks are consequently raising rates on bulk deposits and certificates of deposit. Market participants are advocating for the revival of NRI deposit schemes and tax relief for foreign investors, similar to measures employed during the 2013 taper tantrum.
However, the Reserve Bank of India (RBI) indicates a preference for structural reforms over these past crisis management tools. Officials suggest that India's strong forex reserves, at 9.8 months of cover, do not necessitate a crisis-style response. The focus remains on bolstering capital inflows through liberalizing norms for Foreign Direct Investment (FDI) and External Commercial Borrowings (ECBs).
Experts note that the current global economic environment differs significantly from 2013, reducing the urgency for similar interventions. The RBI has also renewed its Yen swap arrangement with Japan, providing a contingency buffer. While market participants push for tax breaks on capital gains for foreign portfolio investors, decisions on taxation rest with the government.
