Why in news
- Research projections indicate India's Balance of Payments surplus may reach $50 billion in FY27 alongside heavy FCNR(B) inflows.
Key points
- India's Current Account Deficit is expected to stay anchored at 1% of GDP for FY27 despite external energy market shocks.
- Capital account surpluses are driven by the Reserve Bank of India's special FCNR(B) foreign currency deposit scheme, which is projected to mobilize up to $85 billion.
- Commercial banks swap foreign currency inflows from non-resident deposits with the RBI, which absorbs the dollars directly into foreign exchange reserves.
- Because dollars acquired through deposit swaps enter official reserves rather than spot currency markets, net foreign currency market liquidity remains neutral, limiting immediate Rupee appreciation.
Key terms
FCNR(B) Account
Foreign Currency Non-Resident (Bank) account allowing NRIs to maintain term deposits in permitted foreign currencies without exchange risk.
Balance of Payments
A systematic record of all economic transactions between residents of a country and the rest of the world over a specified period.
Prelims facts
- FCNR(B) deposits are held in foreign currency, meaning exchange rate volatility risk is borne by the receiving bank, not the depositor.
- Accumulation of foreign reserves by the central bank absorbs dollar supply from spot markets.
Mains discussion
- Explain why capital account surpluses do not automatically translate into domestic currency appreciation when central banks engage in reserve sterilization.
Source: LiveMint
Same topic · past papers
UPSC has asked this before
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