MUMBAI: Reserve Bank Governor Raghuram Rajan has said unless foreign exchange reserves rise to the level of the Chinese, the economy cannot be said to be insulated from external shocks.
"We have a lot of forex reserves. Right now, it is USD 300 billion plus. So, the key question is at what point you feel safe. I think, if you focus only on reserves, there is really no point at which you feel safe.. 400, 500, 600...any level of reserves, until you get to Chinese level, it is probably not enough," he told researchers and analysts in the customary post-policy concall.
The comments assume importance as the traditional position of the central bank has been not to set a forex reserves target.
China's foreign exchange reserves stood at staggering USD 3.66 trillion as of end 2013, making it the largest in the world, while at the best of times, India could not shore up more than USD 322 billion.
The country's forex reserves rose to USD 298.6 billion in the week ended March 21. But on March 31, Finance Minister P Chidambaram said the reserves had crossed USD 300 billion by that day. RBI would release the formal numbers tomorrow.
Since Rajan assumed office on September 4, the reserves have gone up by over USD 25 billion. On August 30 last, the reserves stood at USD 275.5 billion which crossed USD 300 billion as of March 31. The reserves had surged to an all-time high of USD 322 billion in September 2011.
Rajan said instead of building just reserves, there is a need to focus on creating policy environment which boosts investor confidence. "We, at the RBI, have been trying to provide this confidence and I think this is a far better way."
The Governor said the central bank's intervention in the foreign exchange market is only to curb volatility caused by the higher inflows or outflows.
"Our intervention in exchange market has historically been to reduce exchange rate volatility. And that's not just the volatility today but also the anticipated volatility if the exchange rate becomes unduly strong because of extreme inflows or unduly weak because of extreme outflows."
"So, to the extent we have to intervene to prevent that kind of volatility, we have plenty of reserves," he said.
RAKESH 82 (australia)
thats the way of thinking and setting target but people keep voting for CONGRES/SCAMGRESS and we remain well below this time VOTE FOR MODI and we will overtake china in next 5 years only
Don't worry Rajan modi is there to do it. Looters cannot do it. Sky is the limit.
Hi Rughuram (is that really your name) - now if you get rid off corruption than maybe India stands a chance. How about starting Sonia and her clan, Varda, than the BCCI,....
Forex reserves at Chinese level is invincible. However, India doesn't need that much. I think $1 trillion is very comfortable for India.
Kirankumar Mehta (Ahmedabad)
We should not go by comparison. We should have our own comfort level.
Should we at all compare it with China? Ours is a separate economy. We should have our own comfort level.
Shubham Ojha (jammu)
sameer kulkarni (mumbai)
Be ready for further fall in rupee.
Natarajan D ()
China's reserves really huge, their governance far better. here corrupt ministers canaot be punishes, even could not be removed from ministry. dont compare with china
Sabyasachi Kar (Unknown)
VERY IMPORTANT UTTERANCE FROM THE GOV OF CENTRAL BANK. I WISH OUR POLITICIANS UNDERSTAND THE SIMPLE FACT THAT POWER EMERGES OUT OF STRONG ECONOMY ONLY.
Jitendra Sharma ()
It is a layman on the street talking whilst comparing with China.......... where is the logic...? If a country can thrive on internal production and consumption..where is the need for Paper Dollars....unfortunately....OIL imports need dollars.....and that is what USA has got forcibly linked to
Don't have to always mention China when you are talking of India. They are not comparable except th epopulation. Talking about Forex, the minster's data was out. China now has US$ 4 trillion foreign reserves with about US$600-700 billion external debt. India has abiout US$ 300 billion forex with more than $400 billion external debt. Why do you have to compare these two countries. China's forex is almost TWICE of India's total GDP!
Rara R (Greenway)
And yet China had 300 billion about 8-10 years ago when India had about 200. But look where China is now. That is the difference between Kongress govt and chinese govt.