India is considering calling on its millions of non-resident citizens to help reverse a record slide in the rupee and does not favour the idea of a global sovereign bond at this time, senior government officials have told Reuters.
However, the government strongly denied having ruled out a sovereign bond issue and said in a statement that "all options are on the table".
The officials, who spoke earlier on condition of anonymity, said India was running out of options and time to revive the currency and fund a record current account deficit but equally policymakers were wary of sending any distress signals to international markets.
Issuing a global bond might send such a signal, so instead policymakers will focus on attracting funds from Indians living abroad, such as by raising deposit rates in India or issuing bonds specifically designed for them - repeating measures carried out in 1998 and 2000 to steady a weak rupee.
India has the second-largest diaspora in the world, with a community estimated at more than 25 million, the Ministry of Overseas Indian Affairs says.
Central bank figures show non-resident Indians (NRIs) held $58 billion in dollar deposits in India as of September 2012, plus local currency deposits worth 3 trillion rupees.
Since the rupee's rapid decline, inflows of money from NRIs have risen, the government official said.
The rupee has steadied somewhat since the Reserve Bank of India (RBI) took unprecedented steps last week to try to create demand for the currency by aggressively draining cash from money markets and sharply raising short-term interest rates.
Some of the rupee's fall - 12 percent since May - reflects a broader selloff in emerging markets on signs the United States is preparing to wind down its economic stimulus.
But there are also specific fears about India's slowing economy, a lack of substantive reforms and its large current account deficit. That is reflected in foreign fund outflows from India's debt and equity markets since late May of $11.5 billion.
"The government must be weighing the pros and cons of various options available to them, which would be most effective in attracting capital," said Upasna Bhardwaj, economist with ING Vysya Bank in Mumbai. Options include the issuing of NRI bonds and encouraging state-run firms to raise foreign debt, she said.
"If attractive yields are provided, any of these options could be successful."
India has taken some steps this year to try to attract foreign investment, such as easing registration rules and increasing ownership limits for long-term investors such as sovereign wealth funds.
Experts say that apart from these measures, the government must look to NRI's to shore up the Rupee.
NRIs lapped up bonds and deposits issued by India in 1998 and 2000, helping bridge massive gaps in India's funding needs.
Now, with a current account deficit at a record 4.8 percent of economic output, the country needs all the funding it can get.
The government is also considering allowing select companies such as state-run India Infrastructure Finance Co Ltd or IDFC Ltd (IDFC.NS) to raise up to $4 billion in debt abroad, they said.
One official said state-owned banks are likely to be asked to raise funds from overseas markets to meet their capital needs.
"Even if 5-7 banks raise $1 billion each, it will help us," he said.
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