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हिन्दी — Read in HindiBalance of payments, the rupee and reserves
India's accounts with the world: trade, capital flows, the rupee and the reserves.
All 3 articles shown; the 3 that changed from 1 July to 30 September 2026 are marked.Show only these
Defending the rupee
Copy link to Defending the rupeePrelims and Mains
LeadDefending the rupee: the capital flows packageJune 2026
Why in news
On 5 June 2026 the Centre and the Reserve Bank announced a joint package to draw foreign money into India. Foreign portfolio investors no longer pay income tax on government bonds, and banks were given an incentive to raise foreign currency deposits from non residents.
Background
- India imports more than it exports in goods. Services exports and remittances cover much of the gap; the rest is the current account deficit, which must be paid for by capital coming in.
- In 2026 costlier oil widened the import bill, and foreign portfolio investors pulled money out. The rupee fell.
- The rupee's rate has been market determined since March 1993. The Reserve Bank steps in to curb sharp swings, not to defend a level.
- India has done this before: in 2013, during the "taper tantrum", a similar window brought in about 34 billion dollars.
The three parts of the package
- Tax: an ordinance exempted foreign portfolio investors from tax on interest and capital gains from government securities.
- Access: more government bonds were opened to foreigners without limit under the Fully Accessible Route.
- Deposits: the Reserve Bank offered banks a cheap swap for dollars raised through Foreign Currency Non Resident (FCNR) deposits with banks, FCNR(B), and overseas borrowing.
How the swap window works
- A non resident Indian places dollars with an Indian bank for three to five years.
- The bank hands the dollars to the Reserve Bank and takes rupees, with a promise to reverse the deal later at a rate fixed today.
- The Reserve Bank's reserves rise, and the rupee is supported without the Reserve Bank selling dollars. The bank is covered against a fall in the rupee on the principal.
- The cheap swap is a subsidy: it lets the bank offer the depositor an attractive rate.
What it buys, and what it costs
- It steadied the rupee. By late July the Governor could say the rupee was undervalued on fundamentals.
- But these inflows are debt. They must be repaid, with interest, in three to five years.
- Hot money: bond investors can leave as quickly as they came.
- The tax exemption costs revenue, and it was made by ordinance, which Parliament had to approve later.
- Stable capital is foreign direct investment, and net inflows of it were low in 2025-26.
The way forward
- Treat the package as a bridge. The lasting cure is a smaller oil bill and larger exports.
- Draw equity and direct investment, which do not have to be repaid.
- Keep the share of short term debt low, since that is what turns pressure into a crisis.
Prelims facts
- FCNR(B) deposits are in foreign currency; Non Resident External (NRE) deposits are in rupees and fully repatriable.
- The Fully Accessible Route was introduced in 2020.
- The Reserve Bank's main effective exchange rate index uses a basket of 40 currencies.
- Export proceeds must now be brought home within nine months.
- The rupee has been market determined since March 1993.
India imports more than it exports in goods. Services exports and remittances cover much of the gap; the rest is the current account deficit, which must be paid for by capital coming in.
What changed
26 Jul 2026newly added
- The Reserve Bank Governor said the rupee was not overvalued and could be seen as undervalued in both nominal and real effective terms.
- Banks had raised nearly US$32 billion through the swap window, mostly as Foreign Currency Non Resident (Bank) deposits, adding to reserves without the Reserve Bank selling dollars.
The Hindu, 26 Jul 2026: RBI sees rupee as undervalued; inflows largely through FCNR(B) touch $32 billion (opens in a new tab) · Reserve Bank of India, 20 Jul 2026: Press release on mobilisation under the swap facility (opens in a new tab)
18 Aug 2026newly added
- The Taxation and Other Laws (Amendment) Act, 2026 received assent on 17 August and replaced the ordinance of 5 June that exempted foreign investors' interest and capital gains on government securities from tax.
- On 14 August the Reserve Bank brought forward the close of the deposit swap window from 30 September to 31 August.
The Hindu, 18 Aug 2026: Amendment to Taxation Act, Payment and Settlement Systems Act get President's assent (opens in a new tab) · PRS Legislative Research, 17 Aug 2026: Bill track: The Taxation and Other Laws (Amendment) Bill, 2026 (opens in a new tab) · Reserve Bank of India, 2 Sep 2026: Press release on forex inflows under the swap facility (opens in a new tab)
Show history (1 other update)
5 Jun 2026LeadDefending the rupee: the capital flows package
Trade and the current account
Copy link to Trade and the current accountPrelims
The goods trade deficit is the gap between merchandise imports and exports, and the current account adds trade in services, remittances and investment income.
- The Commerce Ministry releases merchandise and estimated services trade data around the middle of each month.
- The Reserve Bank of India publishes the balance of payments, including the current account, and India's external debt every quarter.
- India usually runs a deficit on goods, partly offset by a surplus on services and by remittances, so the current account deficit has generally stayed between 1 and 2 per cent of GDP.
What changed
13 Jul 2026Briefnewly addedThe goods trade deficit for June 2026 widened to 30.4 billion dollars, as imports rose on costlier crude oil, gold and electronics. The Hindu, 13 Jul 2026: Trade deficit jumps 430% in June 2026 (opens in a new tab)
13 Aug 2026Briefnewly addedThe goods trade deficit for July 2026 was 31.98 billion dollars, a six month high, though exports grew nearly 20 per cent. The Hindu, 13 Aug 2026: Goods exports surged 20% in July 2026 on West Asia recovery and further diversification (opens in a new tab)
15 Sep 2026Briefnewly addedThe goods trade deficit for August 2026 narrowed to 26.86 billion dollars, as exports rose sharply. The current account deficit for April to June 2026 was 4.2 billion dollars, 0.5 per cent of GDP. The Hindu, 15 Sep 2026: India's 26% goods exports surge lowers August 2026 trade deficit (opens in a new tab) · Reserve Bank of India, 1 Sep 2026: Developments in India's balance of payments during April to June 2026 (opens in a new tab)
Show history (1 other update)
30 Jun 2026Briefnewly addedThe goods trade deficit for May 2026 was 28.21 billion dollars, as imports outran record exports. The current account showed a surplus of 7.1 billion dollars in January to March 2026, as services and remittances covered the goods deficit. For 2025-26 as a whole the current account deficit was 0.6 per cent of GDP. External debt stood at 762.8 billion dollars at the end of March 2026. Reserve Bank of India, 8 Jun 2026: Balance of payments for January to March 2026 (opens in a new tab) · The Hindu, 15 Jun 2026: Goods exports hit record high of $45.2 billion in May 2026 (opens in a new tab) · The Indian Express, 30 Jun 2026
The swap window, reserves and liquidity
Copy link to The swap window, reserves and liquidityPrelims and Mains
LeadReserves bought, not earned: the swap window and the liquidity glutSeptember 2026
Why in news
India's foreign exchange reserves rose by a record amount in the first week of September 2026 to about 786 billion dollars, the fourth largest in the world. Most of the rise came from deposits raised under the Reserve Bank's swap window, which closed for deposits on 31 August.
Background
- In June the Reserve Bank opened a window under which banks could swap dollars raised from non residents for rupees, at a subsidised cost (see the June lead).
- By 31 August about 136 billion dollars had come in, almost all of it as Foreign Currency Non Resident (FCNR) deposits with banks, known as FCNR(B) deposits. In 2013 a similar window brought 34 billion.
- The rupee steadied, and reserves reached a record.
Why these reserves are borrowed
- Reserves built from a surplus on the current account are earned. Direct investment brings no fixed date of repayment.
- Reserves that come through a swap carry a promise: the Reserve Bank must return the dollars when the swap matures.
- So the headline figure rises, and the Reserve Bank's forward liabilities rise with it.
- The swap covers the principal only. Banks must find dollars for the interest, and many have not hedged that.
The rupee side: too much money
- For every dollar it takes in, the Reserve Bank releases rupees.
- The surplus in the banking system reached about ₹10 lakh crore, the highest in four years.
- These deposits are exempt from the cash reserve ratio, which adds to the effect.
- Surplus money pushes short term rates below the repo rate, at a time when inflation is above 4 per cent. Policy says one thing and the market another.
How a central bank mops up money
- Reverse repo auctions: taking money from banks for a short period. The Reserve Bank has been doing this.
- Open market sales of government bonds.
- A higher cash reserve ratio.
- Market stabilisation bonds, issued by the government only to absorb money.
- Each has a cost: interest paid to banks, or a higher cost of credit.
The impossible trinity
- A country cannot have all three: a stable exchange rate, free movement of capital and an independent monetary policy.
- India chose in 2026 to steady the rupee and welcome capital. The price is paid in control over money at home.
The way forward
- Sterilise the surplus step by step, without choking credit.
- Replace swap dollars with lasting inflows before the deposits mature in three to five years.
- Make banks hedge their interest exposure.
- Stagger the maturities, so that repayments do not bunch.
Prelims facts
- Reserves have four parts: foreign currency assets, gold, Special Drawing Rights and the reserve tranche position.
- India's reserves rank fourth, after China, Japan and Switzerland.
- A reverse repo absorbs money; a repo injects it.
- FCNR(B) deposits are exempt from the cash reserve ratio and the statutory liquidity ratio under this window.
- The Market Stabilisation Scheme dates from 2004.
In June the Reserve Bank opened a window under which banks could swap dollars raised from non residents for rupees, at a subsidised cost (see the June lead).
What changed
See also: Defending the rupee
Also filed elsewhere
- American tariffs and India's exports · on Trade policy, tariffs and trade agreements
The United States is India's largest market for goods.