The puzzle that is plaguing the Indian currency market this week is huge. Almost everyone was caught off-guard by the Reserve Bank of India's quick mobilisation of almost $32 billion in just a span of seven weeks in a series of targeted forex measures, which has surpassed the $26 billion raised during the famous 2013 diaspora bond drive that Raghuram Rajan had engineered to pull the rupee back from the brink of the taper tantrum. That should be a success for any measure of success. But the rupee has done little to strengthen and banking system liquidity has not changed much, and the rupee is among the worst Asian currencies this year behind only the yen in its slide year to date. That's what everyone from currency desks in Mumbai to trading floors in Singapore is now trying to explain about the gap between its scale and the visible impact.

In a statement to a financial daily this week, Gov. Sanjay Malhotra explained where the funds have been sourced. Most of it, about $25 billion, has come in via the Foreign Currency Non-Resident deposits that allow non-resident Indians to park dollars, pounds and euros in Indian banks at rates now sweetened by the RBI-funded hedging costs. Another close to $7 billion that has come in is foreign portfolio investment in government debt, on which recent changes in tax rules made Indian government paper more palatable to foreign investors. Put those together and the number in the headline is a reality. What's not as clear is what happens to that money after it arrives.

But a significant proportion of the FCNR proceeds is seeping in through the RBI's own crack pipes, as Axis Mutual Fund and several bank treasurers have suggested. Over the last two years, the central bank has taken on a large short-dollar position in the forward market to reduce the volatility, and is buying dollars in order to settle those contracts when they come due. Rumors of estimates suggest they could be as high as $40 billion. Much of the new money does not become available as "liquidity" for the spot market or the domestic banking system until that process of unwinding has been completed. It's in essence canceling a debt that needs to be paid off, not introducing new ammunition.

But there is another, subtler explanation, emerging among some currency strategists, that goes to the heart of the reason that deposit money is different from portfolio money. By definition, FCNR inflows are a liability of the bank to the depositor in foreign currency at maturity. They bolster reserves and drive the arithmetic of the headline balance of payments to the upside, but they are not fresh dollars put up for sale like the receipts of an exporter or the cheque from the foreign equity investor. Malhotra has himself recognised this, and in the newspaper interview stated that the measures were never intended to have a direct mechanical effect on the spot exchange rate, but to increase the external cushion of the country. That's a very different goal than markets, expecting a comparison with 2013, have.

There's also the question of what is going on the other side of the ledger. Crude oil prices haven't been quiet lately. Prices have turned sharply upward toward $87.50 since they fell to $82.45 a barrel after reports of strikes on tankers transiting the Strait of Hormuz, a reminder that the single largest expenditure of dollars for India is its oil import bill, which is hostage to a conflict thousands of miles from Mumbai. India's crude imports are about 85 percent of its requirement and a every dollar swing in Brent is reflected in weeks in the trade deficit. Then there is a dollar near a one-month high, ahead of the Federal Reserve's rate decision; and markets are still expecting a rate hike, not a cut, with a low probability of a rate hike but the headwinds on the rupee don't look incidental.

It's not just about the numbers, there's a nuance to it that needs to be elaborated. The strategy that the existing NRI depositors seem to be following is to close their accounts under the old FCNR scheme, which offered lower interest rates, and reopen new accounts under the new one to avail the higher interest rates, while simultaneously leveraging deposits with banks to avail interest on loans. While Malhotra acknowledges he hasn't seen conclusive evidence that this rotation is occurring at scale, the actual net addition to India's external buffer is lower, even though a meaningful portion of the famed $32 billion is recycled money.

None of all this points to the failure of the RBI's playbook. With FCNR mobilisation running at the current pace, it could increase to $65-70 billion and total inflows in deposits, overseas borrowing and external commercial loans may swell to $80-85 billion, according to a State Bank of India projection that is now doing the rounds. If that's the case, that would be a real strong external buffer going into a year that sees global capital being wary and geopolitical risk premiums being high. The lesson to draw from the episode is that the scheme was not a success, but also, that setting unrealistic expectations of what can be achieved from forex intervention. Reserve building and a spot rate are related but different actions and mixing them together, as most of market commentary has done, can only create disappointment if it is, by itself, a big and successful mobilisation drive. The fate of the rupee in the next few months will largely be tied to the direction which Brent crude and the Fed take on the dollar.