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| Details |
| Case Code: CLIBE018 |
| Case Length: 3 pages |
| Period: -- |
| Pub Date: 2005 |
| Teaching Note: Not Available |
| Subject :Business Environment |
| Price:Rs.50 |
| Organization :-- |
| Industry :-- |
| Countries : -- |
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India's Forex Reserves * |
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| The caselet looks at the increase in forex reserves in India. It gives an overview of the state of forex reserves in India in the 1990s and discusses the RBI's role in raising the reserves. It includes suggestions made by different bodies for the proper mobilization of forex reserves. |
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Issues: |
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- Adopting flexible exchange rate system.
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- Arguments over using forex reserve in India.
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| Introduction |
India's forex reserves consist mainly of US government treasury bills, i.e. assets denominated in US dollars; treasury bills of other developed countries denominated in Euros, and in Yen; and gold and Special Drawing Rights with the IMF. In 2004, India's forex reserves were worth $122 billion.
Montek Singh Ahluwalia, Deputy Chairman, Planning Commission proposed that the foreign exchange reserves could be used for social sector lending and building infrastructure. Till 1991, India followed a fixed exchange rate system. Under this system, there was a need for a high level of reserves.
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| Questions |
1. Do you support Montek Singh Ahluwalia's proposal to utilize forex for infrastructural development? Support your answer with reference to the above comments by analysts.
2. Why do countries hold foreign exchange reserves?
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Keywords |
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Forex, IMF, Planning Commission, fixed exchange rate system, flexible exchange rate system, RBI, FDI, FII, Korea Investment Corporation, foreign debts, Performance Based Deferred Payment concessions (PBDP), inflation, Planning Commission.
* This caselet is intended for use only in class discussions.
** More comprehensive case studies are priced at Rs.200 to Rs.700 (US $5 to US
$16) per copy.
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