World Bank Executive Director for India Neelkanth Mishra believes that the country need not worry about the FCNR(B) repayment following its maturity in five years.
In an exclusive interaction with NDTV Profit, Mishra said the FCNR (B) are relatively cheap source of capital and can be rolled out again if global financing conditions remain unfavourable.
“Every single dollar flow is a liability,” Mishra said, noting that whether the money comes through FDI, portfolio investment or other channels, the liability is not permanent. “Everything else is going to go back at some point and so you should assume that, and it is coming at a cost. No one is putting in money as charity. They will want dividends. So there's a cost to that,” he said.
“So, FCNR(B) is another source of deposit. You're getting it at 6 and a half, 7% which is, I think, reasonably cheap capital,” Mishra said.
“If three years later it needs to go back and the global environment is still not conducive, you issue another FCNRB. I mean, there's no reason why this should not work again,” he added.
ALSO READ: RBI Forex Swap Draws $136 Billion Inflows, FCNR(B) Deposits Take Lion's Share
On August 31, India's special USD-INR forex swap facility drew $136.4 billion in foreign-currency inflows, with 93% share accounted to FCNR(B) deposits, according the Reserve Bank of India data
FCNR(B) deposits stood at $127.2 billion, while overseas foreign-currency borrowings contributed $5.26 billion and external commercial borrowings $3.89 billion.
Speaking on India's current account deficit, Mishra said it needs to be viewed as a savings-investment gap, rather than an indication of the country's economic weakness.
“When you have a current account deficit, you are taking on liability. So you are either selling assets... or you are taking on debt,” he said, indicating at to foreign portfolio investments, private equity investments, external commercial borrowings and foreign investors buying Indian bonds.
In terms of external debt position, Mishra said, “From an external debt to GDP perspective, India is a very healthy economy. It's growing fast,” he said.
The biggest concern currenlty is how the country uses foreign capital, Mishra noted. “I think the only thing we need to worry about is how are we using this external capital,” he said.
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