KOCHI: The Reserve Bank of India's (RBI) special FCNR(B) drive has attracted an extraordinary $52.3 billion in just over two months. But beneath the headline success lies a question that has received much less attention: how much of this represents genuinely new foreign currency entering India, and how much is money being renewed, rebooked or otherwise redirected into the special deposit window?
The question matters because $52.3 billion is a mobilisation figure, not necessarily a measure of the net addition to India's stock of foreign-currency deposits.
Outstanding FCNR(B) deposits with authorised dealer banks rose from $32.56 billion on June 5 to $60.55 billion on July 30, an increase of nearly $28 billion.
That sharp increase clearly indicates a substantial expansion in banks' FCNR funding base. But it cannot by itself tell us how much of the $52.3 billion reported by the RBI represents fresh dollars coming into India.
There can be a difference between gross deposits mobilised and the net increase in deposits outstanding because deposits can mature, be withdrawn, renewed or rebooked during the period.
That distinction is not merely theoretical. Reuters has reported that the FCNR inflows recorded under the special scheme included rebooked existing deposits.
This does not mean that the FCNR exercise failed to bring in fresh foreign currency. Nor does it mean that the dollars were simply moved from one Indian bank to another. The sharp rise in outstanding deposits suggests that a significant amount of additional foreign-currency funding did enter the banking system.
But the $52.3 billion headline does not tell us how much was genuinely incremental.
That becomes important because the RBI has effectively paid for the mobilisation by offering banks a concessional forex swap facility that substantially reduced their hedging cost.
The scheme was introduced in June to attract foreign-currency inflows at a time when India's external balance was under pressure.
The response was so strong that the RBI has now advanced the closure of the FCNR(B) mobilisation window to August 31 from September 30. The ECB and OFCB swap facilities, however, will continue until December 31.
Valid question
The early closure therefore raises another question: has the RBI simply achieved its target earlier than expected, or have the marginal benefits of continuing to subsidise FCNR mobilisation begun to diminish?
SBI Research has argued that the early closure was more likely driven by the RBI achieving its targeted mobilisation than by the cost of the swap facility.
But that makes the composition of the $52.3 billion even more relevant.
If a meaningful portion represents fresh dollars brought in by NRIs, the scheme has delivered exactly what it was designed to do. If a substantial part represents renewals or rebookings of existing India-linked deposits, its impact on India's incremental external funding would be smaller than the headline suggests.
There is no suggestion of anything improper in such rebooking. It is simply an important distinction when measuring the economic impact of the scheme.
The FCNR drive was undoubtedly a success. But the more revealing measure of that success may not be the $52.3 billion mobilised. It may be the amount of genuinely new dollars that India actually gained. And, that number is worth asking for.
