Critically evaluate RBI's use of special swap windows during periods of currency stress, with reference to historical precedents.

A special swap window is a facility under which the RBI offers banks concessional forward cover on foreign currency raised abroad through NRI deposits and overseas borrowings, converting private inflows into usable reserves. Deployed in 2013 and again in 2026, it is an effective emergency stabiliser — but a debt-creating one.

Merits demonstrated by precedent

• Rapid reserve accretion: the facility opened on 8 June 2026 for FCNR(B) deposits, ECBs and OFCBs mobilised $73 billion in eleven weeks, of which $65.40 billion came from FCNR(B) deposits alone [3].
• Cost-effective targeting: in 2013, post-taper-tantrum, RBI swapped fresh FCNR(B) dollars at a concessional 3.5% rate [1], attracting inflows far more cheaply than open-market spot intervention.
• Stable-tenor money: eligibility is restricted to deposits of minimum three-year original tenor, with ECB swaps capped at five years [2] — inflows less flighty than portfolio capital.
• Confidence signalling: a visible reserve build-up deters speculative positioning against the rupee.

Limitations and risks

• Debt-creating flows: FCNR(B) deposits and ECBs enlarge India's external debt stock, unlike FDI, worsening external vulnerability indicators.
• Redemption bunching: uniform minimum tenors mean deposits mature together, converting today's inflow into a concentrated future outflow needing fresh cover.
• Risk transfer to the central bank: subsidised swap pricing shifts exchange-rate risk from banks to the RBI's balance sheet.
• Treats symptoms, not causes: it cannot address the current account deficit, crude import dependence or export competitiveness; inflows alone do not guarantee appreciation.
• Calibration burden: RBI advanced the deposit window's closure from 30 September to 31 August 2026 [3] — prudent, but evidence that over-mobilisation is a live risk.

Swap windows are therefore best judged as a well-designed bridge, not a destination — they buy time cheaply and credibly. Their gains endure only if the breathing space is used to deepen non-debt inflows, widen the export base and strengthen reserve adequacy, so that each future episode of global tightening needs a smaller crisis-era crutch.