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Business News/ Opinion / Quick Edit/  External imbalance
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External imbalance

Our reserves are sufficient to cover import bills for over a year, meet short-term repayments and stabilize the rupee. But the point made by the RBI research paper is worth noting. We usually run trade deficits, after all, and lend less than we borrow overseas.

Photo: iStockPremium
Photo: iStock

A lot has been said about our foreign exchange reserves. At a record $605 billion around the start of June, our pile is one of the world’s largest. It has been likened to a big rock of stability against any economic shock that may arise from turmoil overseas, or a sharp reversal of capital inflows caused by a rise in America’s policy interest rate, which is now expected to go up in 2023, or possibly even sooner. While it’s true India’s stash of hard currency offers us an insurance cover for external instability, it hasn’t been tested.

In a monthly research paper, the Reserve Bank of India (RBI) has noted that “levels are often deceptive" and a better way to gauge our vulnerability is to look at specific indicators. The country’s net international investment position, for example, which is a measure of what’s greater, the foreign assets we hold or liabilities we owe. The latter exceed the former in our case by a figure that amounts to 12.9% of gross domestic product. Our reserves are sufficient to cover import bills for over a year, meet short-term repayments and stabilize the rupee. But the point made by the paper is worth noting. We usually run trade deficits, after all, and lend less than we borrow overseas.

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Published: 17 Jun 2021, 11:00 PM IST
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