State Bank of India’s economic research department has cautioned that without timely balance of payments (BoP) support measures, including a scheme soliciting funds from the diaspora, better tax treatment for investments in G-Secs, restricting remittances for deposits abroad and reducing the annual LRS (liberalised remittance scheme) limit temporarily in FY27, inflationary expectations could become unanchored amid persistent rupee weakness and volatile capital flows.
“The current rupee depreciation is not in line with India’s macro fundamentals. It is, therefore, imperative to control the second-round effects. Exchange Rate Depreciation leads to higher imported inflation.
“Hence, ensuring that inflationary expectations do not get unanchored, we need a structural solution to India’s BOP (balance of payments) deficit,” said Soumya Ghosh, Group Chief Economic Advisor, SBI in a note.
The rupee declined 6.39 per cent between April 2, 2025 and February 27, 2026. But following the onset of the West Asia war, it fell further by 3.63 per cent.
SBI’s ERD economists observed that the exchange rate cannot be construed as a shock absorbing mechanism in perpetuity, as increased levels of uncertainties and volatilities will transform it into a pass-through mechanism of imported inflation seeping through multiple channels, un-anchoring inflationary expectations and defeating at times the very purpose of prudent, and agile monetary policy making.
It is thus imperative that a comprehensive set of measures are required given that BoP could be negative for the third consecutive year.
Measures
SBI Economists suggested that while a scheme soliciting funds from the diaspora is definitely workable, that may also be designed to showcase the connect of the large diaspora spread globally and driving the innovation bandwagon.
“It has to be calibrated suitably across Corpus (a smaller corpus may entice higher demands while signaling no panic), yield (optimal from deployment angle too), tenor (no Hot money) and tax friendly treatment for investors.” they said
The ERD recommended that tax treatment, and certainty for investments in Government Securities (G-Secs) for various categories of investors has a Doppelgänger effect and there is a felt need to rationalise the tax treatment to entice patient capital allocators.
A stable, domestic lower TDS rate under may allow funds to invest directly in Indian G-Secs without setting up complex structures in treaty-favourable jurisdictions (like the Netherlands or Singapore)
Investments in equity/ debt and immovable property have doubled on a YoY (year-on-year) basis. Remittances for deposits abroad have grown by ~25% YoY. So, the ERD suggested that these purpose codes along with large ticket discretionary remittances may be restricted, as also undesired repatriation through the NRO SB route
SBI’s Ghosh said the annual LRS limit of $2,50,000 may be temporarily reduced for select categories towards controlling the outflows. Remittances under LRS should be allowed only for emergency purposes such as medical, education, family maintenance, etc, and dissuaded for categories like travel (~55% share)
Also, frictions embedded in mobilisation of a domestically held gold scheme -- customs duty payment may be revisited for simplification
Published on April 29, 2026