What will save the Indian rupee? There’s an election next year so forget about the stuff that’s really needed — structural reforms to labour and tax laws, easing business regulations and scrapping inefficient subsidies. The quickest and most effective short-term option may be a dollar bond issued to the Indian diaspora overseas which could boost central bank coffers about $20 billion.
The option was mooted a month ago when the rupee’s slide started to get into panic territory but many Indian policymakers are not so keen on the idea
So what are the merits of a diaspora bond (or NRI bond as it’s known in India)?
Bankers reckon India could raise a substantial sum relatively cheaply — there are millions of overseas-based folk of Indian origin (including yours truly) and many of them would probably be happy to commit five-year cash for yields around 6- 7 percent.
Indranil Sengupta, India economist at Bank of America/Merrill Lynch reckons that a $20 billion instant addition to the RBI reserves would sooth markets which deem India’s current reserve cover of 7 months as too little for comfort (of the other BRICs, Brazil has 20 months import cover, Russia 17 months and China 22 months). Sengupta writes