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Narendra Modi goes to Dubai – will Diaspora bond with Bonds?

Prime Minister Narendra Modi goes to Dubai today on 16th-17th August. This would be the first visit to the UAE by an Indian PM in more than three decades. Like most other visits, even this one is likely to see a huge community reception with attendance of Indians from many other parts of the Middle East.

There are a large number of Indian migrants in the Middle East. Most have gone there for contractual employment with various companies and are engaged as semi skilled and skilled workers. UAE alone has more than 2.65 million migrants from India. The high number of migrants that India has across the world obviously reflects in the magnitude of remittances received from abroad.

In 2014, India received the highest magnitude of remittance inflows. A World Bank report had estimated that Indians abroad had sent back more than USD 70 Billion in 2014. Only 17.5 percent of the Indian Diaspora abroad resides in the Middle East, but the region accounts for close to 60 percent of the remittances. Indians in UAE sent back anywhere between USD 12 Billion and USD 15 Billion in 2014.

Almost half of the remittances sent from the UAE come to India. Kerala is particularly a major beneficiary of these massive inflows from the Middle East. At the end of fiscal year 2014-15, more than 1 Lakh crore was present in NRI deposits in Kerala. The state alone accounts for close to one sixth of the NRI deposits in India. Almost 50 lakh people in the state are dependent on remittances from abroad. About one fourth of the 2.65 Million Indians in UAE are from Kerala.

Remittances generate large cash inflows for developing economies and boost domestic demand as they are usually sent for consumption purposes. Many non residents do not have dependents back home and hence send limited remittances to the country. These people would often have an investible surplus which is largely invested in their country of residence.

It is in this regard that ‘Diaspora bonds’ can offer the ideal solution.

‘Diaspora bonds’ are essentially debt bonds issued by a country to its foreign Diaspora. They offer non residents an opportunity to invest in the growth and development of their country. The idea has been effectively utilised by Israel which has consistently issued Diaspora bonds since 1951. In India, on the other hand, Diaspora bonds have been issued by the government only thrice. The ‘India Development Bonds’ was after the economic crisis of 1991 when the country had a massive capital shortfall.

The Vajpayee government reintroduced this instrument in 1998 for the first time. Post the Nuclear tests, India had been put under many sanctions and there was a shortfall of inflows. The government issued the ‘Resurgent India Bonds’ which became a major success. In 2000, the government had again introduced the ‘India Millennium Deposits’. The latter two provided the government with close to USD 10 Billion for the economy. The bonds are issued in foreign currencies – US Dollar, British Pound, Euros etc. and the returns are also provided to the investor in the foreign currency. This protects the investor from a foreign exchange risk. The key is to ensure that the returns are higher than the interest rate available to the investors abroad. A marginal cut in returns can be made by the government as a ‘patriotic’ cut but that is not required when the economy is stable.

Time has probably come for Prime Minister Modi to reintroduce this instrument which was used so effectively by Atal Bihari Vajpayee.  Of course, the contextual situation in 2015 is vastly different from 1998.

India no longer faces similar sanctions and is being looked at as a favoured investment destination. The economy is not in a crisis and the RBI has record foreign exchange reserves for making an active intervention. Still, PM Modi requires massive capital resources if he wants to complete his ambitious infrastructure projects. Investible surplus and savings of NRIs could be an importance source for mobilising funds for ambitious government programmes.

The Railways which is looking at massive capital mobilisation in the next five years could float special Railway Bonds for NRIs.  Similar, instruments could be issued by the Urban Development Ministry which is looking at massive investments for Smart Cities. The Finance Ministry could float special Infrastructure Bonds for NRIs. They diaspora would be more than willing contribute to India’s growth if the government offers a decent interest rate. Their relationship here would be that of a partner and not a donor.

This is a huge pool of money which would be readily available to the government. If the government does not introduce instruments for tapping these funds, then they would continue flowing to private funds. Apart from the proposed National Investment and Infrastructure Fund, the Diaspora bonds could provide a secondary source of funds for the government. Also, with the rupee likely to strengthen in the near future, the government’s effective borrowing could become lower. Currently, the Indian economy is quite stable and the government should not be worried about increased foreign debt.

Thus, one is hopeful that the government would soon introduce investment avenues for NRIs and be able to use their resources for the nation’s progress.


Ketkar, Suhas and Dilip Ratha (2010), ‘Diaspora Bonds: Tapping the diaspora during difficult times’, Journal of International Commerce, Economics and Policy, Vol. 1 No. 2, 251-263

Disclaimer: Opinions expressed in this article are the author’s personal opinions. Information, facts or opinions shared by the Author do not reflect the views of Niti Central and Niti Central is not responsible or liable for the same. The Author is responsible for accuracy, completeness, suitability and validity of any information in this article.

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