The Reserve Bank of India (RBI), may ask the banks to bring a drop in interest rates on NRI deposits. This is a step intended to discourage foreign exchange inflows thereby bringing inflation in control.
Also, the government is considering over the proposal to put a limit on External Commercial Borrowings (ECBs).
Due to large foreign exchange inflow in the country, the value of rupee is increasing. Interestingly, it rose to about 2.2% in March, on account of strong foreign inflows.
With a plethora of investment opportunities available to NRIs in terms of real estate, savings, and deposits, a surge in NRI investments come as no surprise. Talking about NRI deposits, the figures are believed to have increased from USD 35.13 billion to USD 39.13 billion. And, Indian conglomerates and banks have raised a total of USD 28.71 billion, from markets abroad in 2006-07.
RBI is purchasing foreign currency and controlling the flow of foreign currency. All this is being done to prevent a sharp appreciation in value of rupee in easy domestic liquidity, which gives a clear hint towards inflation. The foreign reserves in India have steadily increased to USD 23 billion in the quarter ended March 2007. The increase has helped the reserves to cross the USD 200 billion mark, as the 2006-07 financial year ended.
NRI deposits and ECBs are the only foreign inflows that can be controlled in a decent way with neither harming the economy nor leading to inflation. If foreign inflow like Foreign Direct Investment (FDI) is disturbed, it may hurt the overall positive investment scenario in the country.
