When the Reserve Bank of India announced a fresh set of measures to attract dollar inflows last week, it marked the return of a strategy that had once helped pull the rupee back from the brink.
The central bank’s decision to provide a special swap facility for FCNR(B) deposits and certain overseas borrowings is not new. It is, in fact, one of the most successful crisis-management tools used by the RBI in the past two decades.
The last time India deployed a similar package was in 2013.
That year, the rupee had become one of the worst-performing currencies among emerging markets. The US Federal Reserve’s signal that it would begin withdrawing monetary stimulus triggered a global selloff across developing economies. Investors rushed back to dollar assets. Countries dependent on foreign capital suddenly found themselves exposed.
India was among the hardest hit.
The rupee fell from around 54 against the dollar in May 2013 to nearly 69 by August. Foreign investors pulled money out of debt markets. The current account deficit had widened to a record 4.8 per cent of GDP in FY13. Inflation remained stubbornly high. Foreign exchange reserves were below $300 billion.
India found itself clubbed with Brazil, Indonesia, South Africa and Turkey as one of the so-called “Fragile Five” economies.
The RBI initially responded with conventional measures. It tightened liquidity, raised short-term interest rates and intervened in currency markets. The steps slowed the decline but failed to restore confidence.
The turning point came after Raghuram Rajan took charge as RBI governor in September 2013.
Within days, the central bank unveiled a special concessional swap window for FCNR(B) deposits. Banks were encouraged to raise dollar deposits from non-resident Indians. The RBI offered to swap those dollars into rupees at a highly attractive fixed rate, effectively insulating banks from currency risk.
The response exceeded expectations.
Banks mobilised more than $34 billion through FCNR(B) deposits and overseas borrowings. The inflows significantly boosted India’s foreign exchange reserves and helped stabilise the rupee. Within months, the currency recovered much of its losses and market confidence returned.
It remains one of the most successful examples of a central bank using incentives rather than capital controls to defend a currency.
Fast forward to 2026 and the RBI has once again reached for the same weapon.
The latest package allows banks to raise fresh FCNR(B) deposits while the RBI absorbs the entire hedging cost through a swap facility. Similar support has been extended to eligible overseas borrowings. The objective is straightforward: attract dollars without draining domestic liquidity or raising interest rates.
The similarities with 2013 are obvious. That said, but so are the differences.
For starters, India today is not facing a balance-of-payments scare.
The country’s foreign exchange reserves are more than double what they were during the 2013 crisis. The banking system is far stronger. Corporate balance sheets are healthier. The current account deficit is significantly lower than the levels that alarmed investors thirteen years ago.
In 2013, the market feared India might struggle to finance its external needs. No such concern exists today.
The challenge this time is different.
The rupee is under pressure primarily because of external developments. Rising geopolitical tensions have pushed up crude oil prices. Import costs have increased. Foreign investors have reduced exposure to emerging markets. The dollar has strengthened globally.
In other words, the rupee’s weakness today reflects a difficult international environment rather than domestic macroeconomic fragility.
That distinction is important because it changes what policymakers are trying to achieve.
In 2013, the RBI was trying to restore confidence in India.
In 2026, it is trying to prevent temporary external shocks from becoming a self-reinforcing currency decline.
There is another key difference.
The global interest-rate environment is very different from what prevailed thirteen years ago.
When the FCNR(B) scheme was launched in 2013, developed-market interest rates were close to zero. Dollar deposits in India offered NRIs a meaningful return advantage. The proposition was attractive.
Today, US interest rates remain significantly higher than they were during the post-financial-crisis era. That reduces the relative appeal of shifting money into FCNR(B) deposits. The RBI’s decision to absorb the hedging cost is therefore aimed at making the scheme more attractive than it would otherwise be.
The burden, however, shifts to the central bank.
If the scheme attracts large inflows, the RBI will eventually have to manage the cost when these deposits mature several years later. That is a problem for another day, but it is not a trivial one.
Yet there is a reason why the RBI has chosen this route.
Direct intervention through reserve sales can slow currency volatility, but it cannot permanently alter market sentiment. Measures that generate fresh inflows attack the problem from a different angle. They strengthen the supply of dollars in the system and signal policy intent at the same time.
That is precisely what worked in 2013.
The biggest contribution of the Rajan package was not merely the $34 billion it brought in. It convinced markets that policymakers were ahead of the curve and willing to act decisively.
The RBI is trying to send a similar signal today.
Whether the outcome matches 2013 will depend on factors beyond Mint Street’s control, particularly oil prices and global capital flows. But the central bank’s message is unmistakable.
When the rupee comes under pressure, India still turns to the same crisis manual that worked during one of the country’s most difficult currency episodes. The playbook has survived because it delivered results.
The question now is whether it can do so again in a world that looks very different from the one that existed in 2013.