EconomyIndian Express9 June 2026

Why RBI is returning to a 'terrible' idea to boost foreign inflows

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📌 Summary:

The government and RBI are reviving the 2013 FCNR(B) swap scheme to attract foreign inflows and stabilise the rupee amid a looming Balance of Payments (BoP) deficit
FCNR(B) deposits are fixed-term deposits for NRIs/PIOs/OCIs in freely convertible foreign currencies, without conversion into rupees
How it works: banks raise foreign-currency deposits and the RBI absorbs the exchange-rate (currency) risk — earlier (2013) via a 3.5% subsidy; this time the RBI will fully bear the exchange-rate risk on new 3-5 year deposits mobilised until September 30, making it more potent
In 2013 the scheme drew $26 billion (1.4% of FY14 GDP); analysts (ICICI Securities) estimate ~$50 billion this time, and ~$100 billion total inflows over 12-24 months from all measures
The package also includes removal of capital gains tax and withholding tax on FII/FPI investments in government bonds (announced June 5) to draw debt inflows
Cost: SBI''s estimate puts the embedded hedging cost at ~$125 million per $1 billion raised over a 5-year tenure — the very cost that made then-Governor Raghuram Rajan call it "idiotic" in 2013, even as it succeeded
Why it matters: India faces external-sector pressure (rupee weakness, BoP deficit risk) requiring stable, non-debt-creating capital flows

🎯 UPSC Relevance: GS3 Economy — external sector management, RBI tools to defend the rupee, capital flows and BoP; trade-off between attracting inflows and fiscal/contingent costs

📝 Prelims Facts:

FCNR(B) = Foreign Currency Non-Resident (Bank) deposit, held in foreign currency, eligible for NRIs/PIOs/OCIs
Withholding tax = income tax deducted at source; capital gains tax = tax on profit from sale/redemption of assets
Balance of Payments (BoP) = record of all economic transactions between residents of a country and the rest of the world

🔑 Key Term: Hedging — protecting an investment against adverse market movements (e.g., currency fluctuation); its cost is set by the forward premium

FCNR-BRBIrupeeBalance of PaymentsFPI