'Central bank explores steps to mobilise dollar inflows as rupee slides', Pg25

Key Highlights:

• The Reserve Bank of India (RBI) is considering measures to increase dollar inflows to strengthen foreign exchange reserves due to the rupee's decline.
• The rupee has fallen by 5.5% this year, reaching a record low of 95.33 per dollar last Thursday.
• Foreign exchange reserves have decreased from a peak of $728.5 billion, and equity outflows have reached $19 billion in March and April.
• Potential measures include attracting dollar deposits from non-resident Indians (NRIs) and removing withholding tax on overseas government bond investors.

Detailed Insights:

• The RBI's discussions reflect an urgency to strengthen defenses against capital outflows amidst rising oil prices due to the Iran war.
• One measure under consideration involves reviving a mechanism used in 2013 to attract dollar deposits from NRIs, which brought in approximately $26 billion.
• Another option being discussed is eliminating withholding tax on overseas government bond investors to encourage inflows, with the final decision on taxation resting with the finance ministry.
• The rupee's depreciation has been exacerbated by the war between the US, Israel, and Iran, adding to the near 5% fall in 2025.

Key Concepts Involved:

• Foreign Exchange Reserves: Assets held by a central bank in foreign currencies, used to back liabilities and influence monetary policy.
• Withholding Tax: An income tax that is withheld from a payment.
• Capital Outflows: The movement of assets out of a country.