NON RESIDENT INDIA DEVELOPMENT BONDS AND DEPOSITS

After the introduction of economic reforms in 1991 and adoption of liberalised exchange rate reforms the flow of foreign currencies through official banking channels increased substantially and that of hawala  transactions or tube money (as known in Kerala) got reduced. This gave some leeway to RBI to attract NRI deposits by offering certain incentives. As the external sector of the economy faced shortage of  foreign exchange periodically, Reserve Bank of India and the Central Government initiated the scheme ÿof specific bonds or FCNR deposit schemes that were implemented via commercial banks in the US Europe and  Middle East where Indian diaspora are largely located. So far five major development bonds or special FCNR deposit schemes were introduced to tackle the  shortage of foreign exchange since the embarking of economic reforms in 1991. 

These bonds were issued in foreign currencies.After launching of economic reforms and liberalisation in the country the India development bonds were issued    In 1991,by the State Bank of India to mobilise Foreign exchange to tackle India's prevailing balance of Payments Crisis .The Scheme was designed to attract  both Non Resident Indians (NRIs) and Overseas Corporate Bodies ( OCBs) .The Scheme was successful enough to mobilise $ 1.6 billion  through 5 Year maturity bonds denominated in US dollar with 9.5% interest  and pound Sterling with 13.25 % interest. Prominent features of the Scheme Included tax exemption for holders and recipients including those gifted to Indian residents  without income, gift or wealth taxes. 

The Resurgent India bonds (RIBs) was issued in August 1998 were foriegn currency denominated fixed income instrument issued on behalf of Government of India targeting both NRIS and Overseas Corporate Bodies (OCBs). Issue of RIBs was necessitated due to the sanctions imposed by Western countries and Japan against India for successfully conducting Pokhran - ll nuclear test. The RIBs were issued in currencies including US $ ,sterling pound and Deutsche mark with a fixed tenure of  5 years.The bond mobilised around $ 4.23 billion from more than 30 countries within one month. When the bonds got  matured  they were fully redeemed with a foreign exchange outgo of  $ 5.185 billion on October 1st 2003.

The millennium Development Bond or India Millennium Deposit (IMD) Scheme was a Scheme launched by the State Bank of India primarily to raise foreign exchange reserves in the country. The scheme functioned as a five year foreign currency deposits scheme designed for both NRIS and OCBS. The interest rate offered were 8.5% for US dollar,7.85  % for sterling Pound and 6.85% for Euros, with Principal and Interest rate fully repatriable, and the IMD scheme got redeemed in December 2005.RBI had estimated the total outflows on the reduction of these bonds equivalent to $7.3 billion.

The 2013 Taper Tantrum was a crucial market shock triggered when US Federal Reserve Chairman Ben Bernanke hinted the quantitative easing and bond buying program. Accordingly countries with high current account deficits and heavy reliance on foreign capital hit harder than most other emerging markets. India was grouped among the "fragile five" nations and exchange rate of Indian rupee crashed from about ₹54-55 per US dollar in May 2013 to record low of ₹68  - 69 per dollar by August 2013.The fragile five most vulnerable economies comprised of India,Brazil, Indonesia, Turkey and South Africa  To tackle the situation India employed measures like hike in both repo rate and gold import duties and set up special dollar swap windows for oil companies.Most importantly In September 2013 RBI  launched  a special Foreign  Currency  Non-Resident  (Bank) deposit scheme that attracted more than $ 30 billion in foreign currency so as to rectify the severity of the problem. 

Recently Reserve Bank of India launched  a special FCNR (B) deposit scheme on June 8 2026 to attract foreign exchange inflows by allowing banks to access concessional  US$ Indian ₹ forex swap facility. This scheme enabled banks to offer NRIS higher interest rates ranging from 5.5% to 7.1 % on new NRI deposits with tenure of 3to 5 years, and the RBI absorbed the full currency hedging cost. This gave better option to NRIS in terms of higher returns in foreign currency with attractive tax exemptions.This scheme evoked tremendous response. Accordingly the scheme exceeded it's target with banks mobilizing $ 127.23 billion in FCNR (B) deposits and $ 136,38 billion in total foreign exchange by August 31 against the mobilization target of  $ 57 billion .

CONCLUDING OBSERVATIONS 

Different special deposit FCNR schemes are designed to  attract foreign currency inflows  from non resident Indians spread across the globe and to bolster our foreign exchange reserves position and stabilise Indian rupee. It  has been estimated  that the amount  mobilised in 1991 India development bond accounted  for 0.6% of GDP, in   1998 Resurgent India bonds 1.0% of GDP,in  2000  Millennium Development Bond  1.2% of GDP, in  2013 FCNR deposit  1.4% of GDP and  recent 2026 FCNR B  deposit scheme is estimated to account for  a higher level of GDP share between 3.4% to 3.5% .Recent FCNR (B) swap window was designed to attract foreign currency deposits at concessional  swap rates in order to bolster our external position. Within a short period of just 85 days India could mobilise whopping US $ 127.2 billion.Experts project that under the best possible scenario the  hedging cost would be about US $ 16.3 billion and the scheme's benefits will out weigh it's costs.In any case experience has shown that whenever foreign exchange shortage occurred depending on Indian diaspora or NRIs for foreign currency deposit  inflows are  more appropriate because unlike from multilateral institutions no strings or conditionalities are attached to it  for their assistance.