FORMER IAS OFFICER KBS SIDHU WRITES TO FM ON DOLLAR DEPOSITS
Face2News/Chandigarh
Responding to the ongoing discussion in mainstream financial media and think-tank circles over the scale and efficacy of the dollar deposits and inward remittances recently mobilised by Indian banks, KBS Sidhu, a former Punjab-cadre IAS officer who superannuated in July 2021 as Special Chief Secretary, Government of Punjab, has written to Union Finance Minister Nirmala Sitharaman and other senior officials, enclosing a discussion paper on the subject.
The paper, titled “Rented Dollars, Guarded Rupees:]
The Architecture of Foreign Capital and Undisclosed Wealth in India,” comes as commentary in the pink papers has largely treated the Reserve Bank of India’s concessional swap window, which has drawn $65.4 billion in Foreign Currency Non-Resident, or FCNR(B), deposits and $72.8 billion in total inflows by 21 August, as a straightforward marker of success ahead of the scheme’s early closure. KBS Sidhu’s submission takes a more qualified view.
He argues that the bulk of the recent reserve accretion is debt rather than earned capital: FCNR(B) deposits are contractually repayable within three to five years, and the RBI is absorbing the hedging cost on the scheme in full, an exposure of an estimated $1.5 billion a year that does not appear as a distinct line item in the central bank’s public accounts. He notes that a similar swap window in 2013 produced a redemption wave in 2016 that the RBI had to manage with forward cover and open-market operations, and that the current scheme, roughly double the size of its 2013 predecessor, will produce a correspondingly larger maturity wall between 2029 and 2031.
KBS Sidhu, who also served as Principal Secretary, Finance, Government of Punjab, further said the paper sets this debt-financed inflow against two other channels of foreign capital: foreign direct investment, which arrives without a repayment obligation and carries a productive multiplier in wages and tax revenue that debt does not; and foreign contributions under the FCRA, which he describes as the one channel of foreign money genuinely spent in India and never required to leave, yet the most tightly regulated of the three. A further section examines forty-five years of legislative precedent for a formal amnesty on undisclosed foreign wealth, and the Black Money Act’s enforcement record, which the paper notes has recovered less than one per cent of the tax and penalty demands raised since 2015.
The paper closes with specific recommendations, including quantified public disclosure by the RBI of the fiscal cost of concessional swap windows, a published maturity schedule for FCNR(B) deposits raised under the current scheme, and a review of the Black Money Act’s valuation methodology for immovable property held abroad.
“The reserve figures are accurate and the inflows are real. My submission is only that the cost side of that ledger, the hedging subsidy, the repayment schedule, and the comparison with equity capital that carries no such obligation, deserves the same attention in public discussion that the headline number has received,” KBS Sidhu said.
The full 15-page paper has been placed in the public domain and is available on request.
KBS Sidhu holds an MA Economics (Development Administration and Management) from the University of Manchester, United Kingdom, and is a 1984-batch IAS officer of the Punjab cadre. He is the Founder-Editor of The KBS Chronicle.
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