Critically evaluate the quasi-fiscal costs borne by the RBI in managing currency stability, and their implications for central bank autonomy.

Quasi-fiscal costs are budget-like subsidies delivered off-budget by a central bank — here, the hedging and swap costs the RBI absorbs to attract dollars. With the rupee under pressure amid volatile global capital flows, the RBI's post-June 2026 measures mobilised nearly $32 billion via FCNR(B) deposits and over $7 billion into government securities [1], reviving the old question of what such defence costs, and who bears it.

Gains from bearing the cost

• External buffer: FCNR(B) inflows plus G-Sec inflows shore up reserves and the capital account, cushioning the Balance of Payments against sudden stops [1].
• Cheaper external finance: concessional forex swaps for ECBs by public sector entities lower borrowing costs and stabilise dollar demand [1].
• Self-financing element: the Governor's defence is that excess dollars are invested in foreign assets, generating returns that offset the hedging subsidy [1].
• Mandate-consistent: a stable rupee curbs imported inflation, aiding the statutory 4% CPI target (2–6% band) under Section 45ZA of the RBI Act [2].

Costs and risks

• Hidden subsidy: hedging and swap costs are a fiscal transfer never voted by Parliament, escaping budgetary scrutiny.
• Reversibility: NRI deposits are rate-sensitive "hot money"; outflows on maturity can re-import the very volatility they postponed.
• Balance-sheet erosion: losses shrink the RBI's transferable surplus, indirectly hitting the exchequer.
• Autonomy dilution: quasi-fiscal operations blur the line between monetary and fiscal authority, inviting expectations that the RBI will underwrite currency and borrowing objectives — weakening the credibility on which flexible inflation targeting rests [2][3].

Currency defence through balance-sheet subsidy buys time, not solvency; its legitimacy depends on being temporary, priced and disclosed. Transparent accounting of swap and hedging costs, sunset clauses on concessional windows, and explicit reporting to Parliament would preserve both effectiveness and independence. The ongoing review of the monetary policy framework [3] is the right occasion to codify this — keeping price stability, as the Governor reaffirmed, the anchor of RBI's mandate.