The FCNR(B) saga has ended. Together with ECBs and other foreign-currency borrowing, India has mobilised roughly $136 billion in borrowed dollars to defend arbitrary exchange-rate levels. India’s external debt could consequently rise from about $765 billion to nearly $900 billion. The attempt to prevent a quick appreciation of the Rupee has left the banking system with a surplus liquidity (reserve money) of about ₹7.7 lakh crore, close to the Covid-era peak of ₹9.5 lakh crore. Unlike during Covid, this monetary expansion has occurred while the economy is growing strongly. The RBI has effectively guaranteed the future rupee value of much of this money. In finance, decisions must be evaluated ex ante—before the outcome is knwon. Not every risky decision ends in disaster, but escaping disaster does not justify taking an unnecessary risk. The FCNR(B) and ECB measures must be evaluated through that lens. One argument offered in their defence is that the rupee was facing a “run.” I disagree. A roughly 10% real depreciation in an economy with about $650 billion in reserves, strong remittances and a near-zero current-account deficit is not a run. Even if its is a run, borrowing on a future guarantee is not first line of defence. No doctor will evet start with an emergency medicine. Conventional measures such as interest-rate increases, measured reserve intervention and incentives for stable, long-term foreign investment should have been tried first. Their purpose should have been to prevent disorderly movements, not to control the rupee’s direction or defend a predetermined level. Indonesia recently used such conventional measures. India instead began with an emergency measure. That emergency measure has created five major risks. 1. Clustered outflows whose timing is known Much of the $136 billion is borrowed money that must leave within a known period. The direct cost of the RBI’s exchange-rate guarantee may remain manageable even if the rupee depreciates another 10%. The greater danger is that markets anticipate these large, concentrated dollar repayments and begin exiting before maturity. A bad geopolitical situation three years from now could turn the scheduled outflow into serious pressure on the rupee. We have taken a large financial bet on future conditions over which we have no control. 2. Borrowed dollars may have displaced stable remittances FCNR(B) inflows may partly crowd out ordinary remittances. Some NRIs who would otherwise have remitted money may instead have placed it in attractive, exchange-rate-protected deposits. If so, we have replaced stable, non-debt foreign-exchange inflows with borrowed dollars that must be repaid. That is a deterioration in the quality of external financing, even if the headline inflow looks impressive today. 3. Defending visible exchange-rate levels invites markets to test them Once a central bank signals the exchange-rate levels it is determined to defend, markets acquire a target. If those levels eventually break despite intervention, the adjustment may be abrupt. Treating an arbitrary round number as a policy objective risks turning an ordinary depreciation into a test of central-bank credibility. 4. Temporary rupee appreciation subsidises foreign exits Temporary rupee appreciation allows foreign investors to convert the rupee proceeds into more dollars. With equities already under pressure, we are effectively subsidising their exit. If NRIs and foreign investors deserve such support, perhaps there is nothing wrong with paying ₹3,000 a month to poor women. I never thought I would say that. 5. The creation of enormous reserve money The foreign-currency inflows have created an enormous amount of reserve money. This can multiply through the banking system into deposits and credit. Unless it is durably sterilised, it can produce serious inflationary pressure one or two years from now. Seven-day reverse-repo auctions merely postpone the problem. What can be done now? It would be prudent to begin damage control immediately rather than wait for these risks to materialise and lose time celebrating this “success”. The RBI could consider absorbing the excess liquidity more durably through a CRR increase, Market Stabilisation Scheme bonds or similar instruments. It may be useful to encourage FCNR(B) depositors to withdraw early and invest the proceeds in Indian equities, businesses or housing, supported by limited tax and procedural relief. The RBI could also consider raising interest rates to contain future inflation and support the rupee. The government would do well to attract stable foreign-exchange inflows through measures such as a substantial capital-gains tax reduction. The revenue loss could be offset by cutting wasteful capital expenditure, including airports built where there is insufficient demand. Finally, we should pray to Krishna, or whichever god one believes in, that no major geopolitical or financial disturbance occurs when these deposits mature. Increasing Chinese imports is another option, which I don’t recommend due to strategic reasons. Perhaps the AI boom will go bust and capital will return to India. Perhaps crude prices will collapse or India will receive another positive supply shock. I desperately hope that something like this happens. Macroeconomic policy must account for bad outcomes, not assume them away.