You are a Brit who wants to provide sponsorship for two people. Even though the applicants do not have the capacity to travel, you want them to demonstrate a stable lifestyle and on-going solvency in the Indian economy. You propose that they include evidence like employment contracts, bank statements, and other forms of HARD evidence.
And? ... AND? This is what applicants are supposed to do. It's how people convince ECO's to issue visas and it's not unusual at all. What we get on this site are people who don't do that. So you're on to a good thing. Read this for more info: Should I submit bank statements when applying for a UK Visa? What do they say about me?
You have some questions about it...
Will the Home Office consider her bank balance as money for the UK
visit or will it assume we submitted these documents to show all
Once your capacity for sponsorship is fully established, they will use her evidence to determine if her personal circumstances are secured enough such that she qualifies. They are not idiots; they know that there is an economic disparity between India and the UK and this is not their paramount concern. They will be looking for how 'plugged in' she is with social, family, and economic ties.
How should this be stated in the letter to the Home Office so that it
is clearly understood, or should I submit with only my sponsor
In both theory and practice you don't need to say anything. As mentioned above they are intelligent professionals who can see the bigger picture when it's clearly laid out for them.
If you are really nervous about it, you can template your cover letter like this...
(Premise and relationships go here) I am pleased to once again provide
economic sponsorship for xxx (mother-in-law) and yyy (sister-in-law)
and zzz (sister). The occassion is the expected arrival of my son who
is due on xxxx. Blah blah blah. (attestation of your relationships
(FULL description of your own personal circumstances goes here)
(then some BRIEF text about what you're trying to say) While I have
the capacity to provide sponsorship, I understand that the personal
circumstances of each applicant are of paramount concern. Accordingly,
they must demonstrate a stable lifestyle along with social ties and sufficient
economic ties to India to warrant their return at the conclusion of
their visit. To this end I have advised each family member to include
their own employment contracts, salary slips, and bank statements.
This is done with the expectation that you will find their personal
affairs in order and conclude that they qualify under Appendix V of
(Attestation of your presence in the UK during the visit goes here)
(Blub on accommodation goes here)
(Burb on transport and insurance (if necessary) goes here)
It should be straight-forward and if you need more than a page you're doing it wrong. ECO's love a well-polished, eloquent, and informed cover letter, but it's risky because if it's poorly written or too long or introduces irrelevant material it can work against you. Avoid having them revert to the discrepancy method to refuse the application(s).
There is nothing at all in this template that says anything about the
applicant's intentions other than the occasion of the visit. If you
put something in your letter about their intentions or their
performance history, your other attestations will be discarded and
ignored. You cannot read people's minds and suggesting that you can will damage your credibility.
There is nothing at all in this template where you guarantee that the
applicants will return to India. This is overstepping your role and
will undermine your credibility. You cannot tell the future so avoid suggesting that you can.
There is nothing in this template where you describe their personal
circumstances or make excuses for their employment or their reduced
circumstances or anything else like that. Once again it's
overstepping your role and they may discard your sponsorship
Your cover letter is about YOU, not them.
Finally, don't cut-and-paste my text. It's elevated and will be out-of-whack with the other parts of your letter. Use your own words.
Random note: Indian nationals account for for 21% of all entry clearances issued world-wide. As such they are the 2nd largest end-user globally (455,000 issued). 85% of entry clearance applications in India are successful.
(Source: Immigration Statistics Quarterly Release 2016)