Synopsis
The Reserve Bank of India’s special deposit scheme is successfully attracting significant foreign currency from overseas Indians. Banks have already mobilized over seventeen billion dollars through this initiative, which runs until September. This measure aims to bolster the nation’s foreign exchange reserves and support the rupee’s stability. The scheme also helps correct an imbalance between deposit and credit growth within Indian banks.
RBI’s scheme to soak up diaspora dollars is running smoothly as expected. Banks have mobilised $17.40 bn from NRIs during a special drive to raise fresh FCNR(B) – foreign currency non-resident (bank) – deposits. The apex bank’s scheme, which was operationalised on June 8 and will run till September 30, allows banks to raise 3- and 5-yr deposits without hedging the currency risk. Since the central bank is absorbing the currency risk, banks are offering higher tax-free returns on these deposits. Going by the response to the scheme, it could draw in $50 bn by September.
The central bank has used this measure on earlier occasions of dollar flight, such as during the US Federal Reserve’s taper tantrum in 2013, and earlier in 2000 and 1998. The response had been robust each time, and earlier fundraising drives provide a rough estimate of collections for this year. The rupee has been under pressure since the US war on Iran and the crisis that has followed in West Asia, and special dollar deposits by NRIs should help strengthen forex reserves. Deposit growth at Indian banks has been lagging credit growth, and the special FCNR(B) scheme could also help address the imbalance. Private and foreign banks have been tight-lipped about their targets and collections, but public sector banks are more open about both. Banks must disclose daily data on FCNR(B) deposits to RBI.
Special rates for overseas investors are warranted when a country faces macroeconomic instability, but they distort market pricing and become a liability for banks. Likewise, absorbing hedging risks makes this an expensive intervention for the central bank’s balance sheet. India has restricted the use of special NRI deposits to exceptional circumstances, knowing well that such schemes work, albeit at a cost. Yet, repeated recourse to the measure over the decades speaks to the fragility of India’s balance of payments. India must build greater resilience into its export earnings to avoid emergency measures like special NRI deposits.
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Right policy space for strategic industries
ET BureauLast Updated: Jul 20, 2026, 11:41:29 PM IST
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Synopsis
Skyroot Aerospace’s latest launch marks a milestone for India, signifying its official entry into the exclusive league of private orbital launch providers. This achievement comes as a result of favorable policy reforms that promote commercial space ventures and welcome foreign investments. The development reflects a notable increase in domestic arms production by the private sector, with the government actively supporting this expansion through its role as a key buyer.
Last week, Skyroot Aerospace, a Hyderabad-based startup, catapulted India into the private orbital launch club, whose only other members are the US and China. The placement of 6 satellites into low Earth orbit by the company’s Vikram-1 rocket is a swift response to India’s decision to encourage commercial exploitation of space. Access to dual-use tech has been eased, and foreign investment has been liberalised for manufacture and delivery of payloads. India has deftly tapped into the commercial interest driving satellite and rocket tech. The immediate business case for the space sector is telecom. The country needs domestic capability in satellite-based internet services, which is predicated on efficient launch technology, such as reusable rockets.
The policy pivot in a strategic sector like space is also delivering results in two other areas – arms production, and atomic energy. Private sector armaments production now accounts for close to 1/4th of domestic output, supported by easier access to technology and capital. This effort has gained traction because GoI is also the principal buyer of privately produced defence equipment. The defence acquisition procedure has been tailored to encourage local procurement. Industrial corridors are facilitating private armaments production, although larger defence platforms, such as aircraft and aircraft carriers, remain in the public sector.
The push for private participation in nuclear energy is of more recent vintage. The sticking point was the unlimited civil liability imposed on contractors in the event of an accident, which has now been capped. This should open the door to private nuclear power plants. A clutch of domestic companies has shown interest within a year of the liability law being amended and foreign investment being liberalised. Across all three sectors, the conversation has shifted from technological capability to engineering capability. India may have found the right policy combination for developing strategic industries.
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