RBI: Amid rising imports, $600 billion foreign exchange reserves might not be sufficient

The Reserve Bank of India (RBI) has indicated that the report degree of $600 billion international trade reserves of the nation might not be ample, contemplating the projected imports and the unfavorable worldwide funding place.
“While foreign exchange reserves provide cushions against unforeseen external shocks, levels are often deceptive, and a better gauge of external vulnerability is an assessment of specific indicators,” the RBI stated in its ‘State of the Economy’ report.
In phrases of projected imports for 2021-22, the present degree of reserves gives cowl for lower than 15 months, which is decrease than for different main reserve holders — Switzerland (39 months), Japan (22 months), Russia (20 months) and China (16 months), the RBI stated. At the tip of December 2020, India’s international trade reserves cowl of imports elevated to 18.6 months from 17.1 months at end-September 2020.
Moreover, India’s reserves co-exist with a internet worldwide funding place of (-) 12.9 per cent of GDP. “These factors warrant a pragmatic assessment of reserve adequacy on FX reserves, including exposure to valuation changes and market risk in a world of heightened global uncertainty,” the RBI stated.
Foreign trade reserves reached an all-time excessive of $605.0 billion on June 4, 2021. “With this development, India is the 5th largest reserve holding country in the world, the 12th largest foreign holder of US treasury securities and the 10th largest in terms of gold reserves,” the RBI stated.

During the six-month interval ended March 2021, deposits with different central banks rose from $124.15 billion to $153.39 billion and deposits with abroad business banks went up from $7.43 billion to $23.42 billion which works out to 4.36 per cent of whole international foreign money belongings (FCA).
However, the RBI lowered its investments by $10 billion in abroad securities.