India once again finds itself facing pressure on its external sector. A combination of global trade tensions, geopolitical instability in the Middle East, elevated crude oil prices, foreign portfolio outflows and increased repatriation of foreign investments has weighed on the rupee over the past year. While the circumstances differ from those of 2013, the underlying challenge remains familiar: managing foreign exchange pressures in an economy that continues to depend heavily on imports, particularly for energy.
Recognising these pressures, the Reserve Bank of India (RBI) has announced a series of measures to strengthen foreign currency inflows and support external stability. Among them, the most significant is the revival of a framework similar to the FCNR(B) deposit scheme that proved highly successful during the 2013 taper tantrum. In effect, the RBI has returned to a tested policy instrument, adapting it to current conditions.
