Balance of Payments
As rupee falls, SBI Ghosh calls for structural solutions to India's BoP gap
This story was originally published at 13:53 IST on 29 April 2026
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NEW DELHI – Noting that the current depreciation of the rupee is not in line with India's macro fundamentals, State Bank of India's Group Chief Economic Adviser Soumya Kanti Ghosh Wednesday said there is a need for a comprehensive set of measures to support the balance of payments deficit.
"Exchange rate cannot be construed a shock-absorbing mechanism in perpetuity, as increased levels of uncertainties and volatilities render it to transform into a pass-through mechanism of imported inflation seeping through multiple channels, anchoring inflationary expectations and defeating at times the very purpose of prudent, and agile monetary policymaking," Ghosh said in a report.
"It is thus imperative that a comprehensive set of measures are required given that BoP (balance of payments) could be negative for the third consecutive year," he added. The rupee has come under immense pressure since the onset of the war in West Asia on Feb. 28, falling over 4% against the dollar so far.
The economist noted that exchange rate depreciation leads to higher imported inflation and perennial capital outflows further put pressure on the rupee, and it may depreciate further. Hence, in order to ensure that inflationary expectations do not get de-anchored, there is a need for a structural solution to India's balance of payments deficit, he said.
Ghosh expects the balance of payments to be in the negative territory in both 2025-26 (Apr-Mar) and FY27, with the trade balance projected to be negative as well. He sees a depletion of $48 billion in the foreign exchange reserves on a balance of payments basis during FY26 and $28 billion in FY27. In FY25, there was a depletion of $5 billion in the reserves on a balance of payments basis. In Apr-Dec, foreign exchange reserves depleted by $30.8 billion on a balance of payments basis.
"The strain on BoP front has front-loaded the question of launching a deposit mobilisation scheme reminiscent of 2013, while also evoking success of RIB (Resurgent India Bonds) (1998) and IMD (India Millennium Deposit Bonds)(2000) that had amassed sizeable flows in times of duress," he said.
In order to attract inflows, in 2013, the RBI had swapped dollars raised by banks via foreign currency non-resident deposits at concessional rates, while in 1998, the SBI borrowed in foreign currency in the overseas market through instruments such as Resurgent India Bonds. Similarly, in 2000, SBI floated the India Millennium Deposit Bonds, a multi-billion-dollar deposit issue, for a period of five years.
"However, factoring the realities of yield curves across DMs (developed markets) (and its decoupling from policy rates), any such scheme needs to weigh in all the possible ‘what if' scenarios on cost of funds (on resource mobilization front), hedging cost structure and lending costs for borrowers vis-a-vis opportunity costs," Ghosh said. While a scheme soliciting funds from the diaspora is definitely workable, it has to be calibrated suitably across corpus, yield, tenor and tax-friendly treatment for investors, he said.
Ghosh also listed tax relief measures, saying there is a need to rationalise the tax treatment to entice patient capital allocators. He also called for restrictions on remittances for deposits abroad, along with large-ticket discretionary remittances and undesired repatriation through the non-resident ordinary savings bank route.
"A stable, domestic lower TDS (Tax Deducted at Source) rate under Section 194LD may allow funds to invest directly in Indian G-Secs without setting up complex structures in treaty-favourable jurisdictions (like the Netherlands or Singapore)," he said.
Further, the annual liberalised remittance scheme limit of $250,000 may be temporarily reduced for select categories towards controlling the outflows. Remittances under the liberalised remittance scheme should be allowed only for emergency purposes such as medical, education, family maintenance etc. and dissuaded for categories like travel, he said. Ghosh also batted for revisiting the simplification of frictions embedded in the mobilisation of domestically held gold scheme, namely, customs duty payment. End
US$1 = INR 94.76=8
Reported by Pratiksha
Edited by Tanima Banerjee
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