India's foreign exchange reserves decline USD 18.34 billion in one week
GS3Economy · S&T · Environment · Security· Monetary policy, RBI & banking· Prelims·
Macroeconomic stability and reserve management: a key GS3 topic regarding external shocks and trade deficits.
Why in news
Deepanshu Mohan of O.P. Jindal Global University analyzed a reported USD 18.34 billion decline in India's foreign exchange reserves over a single week.
Background
India's foreign exchange reserves declined by USD 18.34 billion in one week. The Reserve Bank of India (RBI) manages these reserves to buffer trade deficits and volatile capital flows.
Facts for Prelims
- BodyReserve Bank of India (RBI) is the body responsible for managing India's foreign exchange reserves.
- FactIndia's foreign exchange reserves declined by USD 18.34 billion in one week.
- FactReserves are used as macroeconomic insurance to buffer trade deficits and volatile capital flows.
Prelims practice question
Which institution is responsible for managing India's foreign exchange reserves?
- (a)Securities and Exchange Board of India
- (b)National Bank for Foreign Trade
- (c)Ministry of Finance
- (d)Reserve Bank of India
Show answer
Answer: (d) Reserve Bank of India — The Reserve Bank of India (RBI) is the body responsible for managing India's foreign exchange reserves.
For Mains
Q. Analyze the role of foreign exchange reserves as a macroeconomic stabilizer for India and suggest measures to reduce vulnerability to external shocks.
Dimensions to cover in your answer
- External vulnerability: High sensitivity to global energy price shocks and trade deficit fluctuations
- Structural resilience: Necessity of diversifying export baskets to reduce reliance on volatile capital flows
Keywords: Macroeconomic insurance · Trade deficit · Capital flows · External shocks · Reserve management
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