The Indian government’s strategy to attract NRI (non-resident Indian) dollar deposits through higher interest rates is a well-intentioned but insufficient response to the rupee’s weakness (“India presses state-owned banks to court diaspora for deposits in support of rupee”, Report, July 15).
The real problem is not a shortage of foreign inflows, but rather India’s structural dependence on fossil fuel imports, which remains largely unaddressed in current policy discussions.
India spends over $100bn annually on crude oil and coal imports. This represents, not a cyclical problem, but the largest and most predictable drain on the rupee. No deposit scheme, however attractive, can effectively offset this persistent haemorrhaging. While NRIs earn 7.5 per cent on their deposits, the foreign exchange saved from reducing fossil fuel imports would provide permanent and structural support to the currency in ways that temporary capital inflows simply cannot match.
More troubling still is the question of who truly benefits from the current approach. Import-dependent capital-intensive industries enjoy outsized profit margins from exchange rate appreciation, gains that are divorced entirely from productivity or innovation. The deposit scheme, however well-designed in its mechanics, in effect subsidises this system while ordinary savers receive only modest returns on their capital.
A more logical industrial policy would accelerate electrification across multiple sectors: renewable energy deployment, electric vehicle adoption and industrial electrification. This approach would achieve three things the government deposit scheme cannot accomplish. It would permanently reduce import dependence, force genuine productivity improvements within the private sector, and align India with global capital flows that increasingly favour energy transition.
A credible five-year electrification roadmap would save more foreign exchange than years of pursuing volatile and unpredictable deposit inflows. Such a strategy would also demonstrate to international investors that India’s macroeconomic strategy is built on genuine structural transformation, rather than symptom management.
It would signal confidence in India’s long-term competitiveness, not reliance on temporary financial engineering.
The rupee does not need more inflows. India’s economy needs fewer outflows. Electrification is the path to achieve both sustainably.
Hozefa Merchant
Director, Bombay Strategy, Houston, TX, US
