Discuss the role of instruments like FCNR(B) deposits in managing India's external sector vulnerabilities. How effective have such swap windows been historically?

FCNR(B) deposits are foreign-currency term deposits of NRIs with Indian banks. Paired with a concessional RBI swap, in which the central bank absorbs the exchange-rate hedging cost, they become a rapid, non-market channel for financing India's external gap. The 2026 window illustrates both their power and their limits.

How such instruments address external vulnerabilities

• Speed and scale of forex mobilisation: the facility operationalised on 8 June 2026 drew about $133 billion through FCNR(B), and $143.6 billion including OFCBs and ECBs, by its advanced closure on 31 August 2026 [1] — far above market expectations.
• Rupee defence without depleting reserves: dollars move from NRIs to banks to RBI under the swap, easing depreciation pressure while adding to reserves, unlike spot intervention [3].
• Design that locks capital in: only deposits of minimum three-year original tenor qualify, with the swap co-terminus up to five years [2] — converting footloose flows into stable medium-term funding.
• Banking-system relief: stable foreign-currency resources ease stretched credit-deposit ratios and support lending capacity [3].

Historical effectiveness — real but partial

• Proven in crisis: the 2013 taper-tantrum window, open to fresh FCNR(B) deposits of three years and above [4], arrested the rupee's slide; 2026 replicated the template at several times the scale [1].
• Costs are hidden, not absent: the concessional hedging cost sits on RBI's books, appearing in no Budget document.
• Domestic spillover: rupees created against swapped dollars swelled banking liquidity and pulled money-market rates below the policy rate, weakening monetary transmission.
• Bunching and non-repeatability: a three-month window concentrates repayments in a single future year, and rating agencies caution that inflows of this scale will not recur.

Such windows are best read as emergency insurance, not a cure — they buy reserves and time, not structural strength. The durable answer lies in FDI and long-term equity that carry no maturity date, supported by staggered repayment management through the forward market and transparent disclosure of swap costs in RBI's Annual Report. Used sparingly, they remain a valuable crisis lever within a sound external-sector framework.