The optimists are not wrong - just early.
A foreign currency deposit scheme yielding ~19 per cent will attract dollars, accumulate reserves and exert upward pressure on the rupee. The balance of payments will, in all likelihood, move into surplus. On this, the bulls and the data will briefly agree.
The question worth asking is what kind of surplus this is.
Non-resident depositors are rational actors with finite tenors. They arrive when the yield differential justifies arrival and depart when it does not. The rupee stability this produces is real but contingent. It is dependent on the continuous renewal of an incentive, not on any structural shift in how the world prices Indian assets.
India's own data makes the point: $53.6bn in repatriation against $7.7bn in net FDI is not a crisis. It is a preference.
The RBI, with $600bn in reserves, is not without resources. It is, however, absorbing depreciation risk the market would otherwise price. The signal the rupee would naturally send is not being sent.
Surplus on the balance of payments is a signal. The question is whether it signals strength or subsidy. For now, the answer is some of each. Markets that treat it as exclusively the former may find the distinction matters sooner than they expect.
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