Speculations on Excess Indian Forex Reserve

Publisher: Priyadarshi Kirti Gourav

Following an increase in forex reserves and decrease in the current account deficit during the pandemic, there rose much speculations to the allocation of the excess funds with India.

One may argue to divert these funds for the resurrection of the Indian economy.

Given the forex reserve, the exchange rate, and RBI’s comment has raised important questions:

1) Are the growing currency reserves a sign of a healthy external balance?

2) How are these reserves deployed currently, and could India use them more effectively to achieve growth and prosperity?

3) Finally, with so much reserves, should we now let the rupee appreciate so that inflation softens and our wealth increases?

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