Famous FCNR(B) Deposit Scheme Reeked of Re-run of 1991 BoP Crisis: White Paper

The White Paper on Indian Economy tabled by Finance Minister Nirmala Sitharaman in the Lok Sabha on Thursday said that the famous Foreign Currency Non-Resident [FCNR(B)] deposit window for NRIs was actually a call for help when there was a large depletion of the foreign exchange reserves.

Under the UPA government, foreign exchange reserves had declined from around $294 billion in July 2011 to around $256 billion in August 2013.

By end-September 2013, forex reserves were just enough to finance little over six months of imports, down from 17 months in end-March 2004.

"Forex reserve to external debt ratio tanked from 95.8 per cent in FY11 to 68.8 per cent in FY14. To salvage an ever-worsening situation, the Reserve Bank of India (RBI) opened a special window for FCNR(B) to attract US dollar deposits at a high premium in August-September 2013.

"The costly solution to the above self-created predicament reeked of a re-run of 1991 when India had to approach the IMF for assistance during a Balance of Payments crisis," the White Paper said.

However, a dubious distinction from 1991 is that the amount raised from NRIs through FCNR(B) ($26.6 billion) was 12 times the 1991 IMF bailout ($2.2 billion). The redemption of this high-cost dollar debt was left behind for discharge in FY16, a liability that has since been honoured by our government without disruption," the White Paper said.