India’s forex (foreign exchange) reserves have always oscillated between tolerable and uncomfortable. After 1976-77 India’s foreign trade (merchandise) balance has always been negative; India’s dependence on import of crude oil adds to the discomfiture. With a view to insulate India from the vicissitudes of war, Reserve Bank of India conceived an expensive scheme to garner a substantial slice of additional forex with effect from 8 June 2026, by wooing Non-Resident Indians (NRIs). NRIs lapped up the opportunity. $127.2 billion flowed in swiftly to the FCNR (Foreign Currency Non-Resident) “B” deposit scheme of the RBI. India’s foreign exchange (forex) reserves swelled to a record high of $740.8 billion as on 31 August 2026.

FCNR-B deposits were so lucrative that the RBI had to close the scheme prematurely on 31 August 2026, instead of on 30 September 2026; otherwise, India would have been further flooded with costly unstable funds, as argued hereinafter. A salient feature of the FCNR-B scheme is that entire funds with interest are freely repatriable abroad. Secondly, the funds are immune from currency risks, which means, every dollar shall be repaid only in dollar, regardless of the dollar’s exchange rate prevailing on the date when the NRI receives the funds abroad. The RBI bears the exchange risk, estimated at 3 per cent per annum.

The cost for raising $127.2 billion for 5 years (maximum) is an estimated $19.08 billion. This is a direct fiscal hit on India, with annual cost exceeding a........

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