Shankar Sharma, a prominent market commentator, has criticized the Reserve Bank of India's (RBI) decision to revive the Foreign Currency Non-Resident (Bank), or FCNR(B), deposit scheme. According to Sharma, the move does not address India's external-sector challenges and will instead effectively finance foreign institutional investor (FII) exits.
In a recent analysis, Sharma argued that the FCNR(B) scheme, which allows non-resident Indians to deposit foreign currency in Indian banks, is a short-term fix. He stated that the inflows from this scheme would likely be used to offset capital outflows by FIIs, rather than strengthening India's foreign exchange reserves or boosting the economy.
The RBI's decision to revive the FCNR(B) scheme comes amid concerns over India's current account deficit and a weakening rupee. However, Sharma believes that the scheme's impact will be limited, as it primarily provides a temporary buffer against capital flight. He emphasized that structural reforms are needed to address the root causes of India's external vulnerabilities.
Sharma's comments have sparked debate among economists and market analysts, with some agreeing that the FCNR(B) scheme is a stopgap measure, while others argue that it can help stabilize the currency in the short term. The RBI has not yet responded to Sharma's criticism.
