India stared down an abyss 20 years ago, with foreign exchange reserves barely adequate to finance 15 days of imports even as capital was fleeing the country. That was the lowest point in the economic history of independent India.
The Reserve Bank of India now holds foreign exchange reserves of more than $300 billion, enough to buy around 10 months worth of imports and enough firepower to defend the rupee against a sudden withdrawal of dollars by stock market investors. Critics argue that this hoard is too big, earning very little and imposing other costs on the Indian economy.
But think of it as insurance, to be used as protection in bad times.