Banks have mobilised close to 32 billion dollars under the Reserve Bank of India's recent measures to attract foreign capital, largely through Foreign Currency Non-Resident deposits, Governor Sanjay Malhotra has said. Government securities have drawn more than 7 billion dollars in foreign inflows since the June policy measures.
In an interview with The Hindu BusinessLine, Malhotra rejected the suggestion that the inflows are simply existing deposits being recycled into a better paying instrument. He said the central bank has adequate tools to manage the liquidity the money creates, and that the inflows have strengthened India's external position at a time of heightened geopolitical uncertainty and volatile global capital flows.
The recycling question is the right one to press, because the two possibilities look identical in the headline figure. New money entering the system improves the external position. Money moving from one rupee deposit into a dollar denominated one raises the number without adding anything, and leaves the central bank carrying hedging costs for the privilege.
That cost is the second issue put to the Governor, alongside concessional foreign exchange swaps offered for external commercial borrowings by public sector entities. Both are subsidies, and both are defensible as the price of stability, provided someone is counting. The Governor separately described the rupee as undervalued, which is a statement about where he thinks it should trade rather than a forecast of where it will.