IDEAS home Printed from
   My bibliography  Save this paper

Managing India's Foreign Exchange Reserve: A preliminary exploration of issues and options


  • Chaisse, Julien
  • Chakraborty, Debashis
  • Mukherjee, Jaydeep


Since mid-nineties, India’s foreign exchange reserves (FER) – both nominal and real adjusted for price level – started growing considerably and reached a new peak of US$ 251985 million in 2008-09. The fact that such unprecedented accumulation of FER build-up has materialized despite India's balance of payment on its current account being mostly negative, has raised debates on the major potential challenges for Indian Sovereign Wealth Fund (SWF), in case they come to existence. Using the two measures of reserve adequacy - the ratio of reserves to short-term external debt and ratio of reserves to broad money – the study indicates “too much” of reserves build-up for the Indian economy particularly since 2002, suggesting thereby that India has substantial amount of surplus reserves. Given the fact that India’s current account balance is worsening for the last couple of years, it could be noted that the increase in India’s FER has been caused by speculative capital inflows on the capital account. In other words, the reserve is very much exposed to potential sudden outflows by foreign investors and any decision should be taken keeping this perspective into account.

Suggested Citation

  • Chaisse, Julien & Chakraborty, Debashis & Mukherjee, Jaydeep, 2010. "Managing India's Foreign Exchange Reserve: A preliminary exploration of issues and options," MPRA Paper 22873, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:22873

    Download full text from publisher

    File URL:
    File Function: original version
    Download Restriction: no

    References listed on IDEAS

    1. Singh, Lakhwinder & Jain, Varinder, 2009. "Emerging pattern of India's outward foreign direct investment under influence of state policy: A macro view," MPRA Paper 13439, University Library of Munich, Germany.
    2. A. Blundell-Wignall & Yu-Wei Hu & Juan Yermo, 2008. "Sovereign Wealth and Pension Fund Issues," OECD Working Papers on Insurance and Private Pensions 14, OECD Publishing.
    3. Singh, Lakhwinder & Jain, Varinder, 2009. "Emerging Pattern of India's Outward Foreign Direct Investment Under the Influence of State Policy: A Macro View," MPRA Paper 13458, University Library of Munich, Germany.
    4. Park, Donghyun & Estrada, Gemma, 2009. "Developing Asia's Sovereign Wealth Funds and Outward Foreign Direct Investment," ADB Economics Working Paper Series 169, Asian Development Bank.
    Full references (including those not matched with items on IDEAS)

    More about this item


    Foreign Exchange;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:22873. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter) or (Rebekah McClure). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.