Macroeconomics Case Study

India’s Forex Reserves

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Abstract: After its independence from the British in 1947, India formulated its economic policies to attain self-reliance, encourage productivity and attract foreign investment. For the first fifty years after independence, the Indian government was unable to maintain a comfortable level of foreign exchange reserves and it also faced the problem of increasing external debt. But the economic reforms of the late 1990s helped the country to accumulate forex reserves to the tune of $100 billion.

Pedagogical Objectives:

• To understand the importance of foreign exchange reserves
• To analyse foreign exchange rate regime and determination of exchange rate determination
• To discuss if emerging markets are ready for capital account convertibility.

Keywords : India's forex reserves; Five-year plan; Industrial policy statement; Foreign Exchange Regulation Act (FERA); Planning Commission; Balance of payment; Liberalisation policy; Monopolies and restrictive trade policies; Cash assistance scheme; Liberalised exchange