India needs $60 bn forex reserves to sustain global volatilities: Report

Buying of Forex reserves up to $ 60 billion would cost $3.2 billion for India, however, anything more than that could affect fiscal balance, says HSBC in its latest report

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Despite a steady growth, India needs additional $60 billion foreign exchange reserves (Forex) in order to stay sustained to global volatilities, said a global financial major, in its latest release. The latest HSBC report says that India’s forex reserves in 2015 are beyond traditional norms, however, the country’s experiences in recent times suggest $60 billion buffer could help the country face tight financial situation globally. "We estimate an additional $60 billion of reserves, taking overall holdings to $420 billion, could take care of key vulnerabilities (such as un-hedged external commercial debt, short-term external debt and portfolio outflows)," said India Chief Economist Pranjul Bhandari, in a research note. Even though India had lost $20 billion of forex reserves during 2013, the country could build up more than four times that amount since then. And, it is noteworthy that India's forex reserves rose to a new high of $354 billion in the week that ended June 12, 2015. According to RBI statistics, India’s total reserves, as of June 12, 2015, stand at $354,288.6 million of which foreign currency assets alone accounted for $329,581.8 million. At present, with about $360 billion (including $5.2 billion of net forward position) of Forex reserves, India boasts of an import cover which is three times larger than that of the International Monetary Fund (IMF)'s recommended value of three months, HSBC added. Stating that buying of forex reserves up to $60 billion would cost $3.2 billion for India, the global financial services major, on the other side, also cautions with having excess reserves saying that could cause damage to the fiscal balance. Swapping of agreements with bilateral and regional partners, similar mechanisms with G20 nations and other organizations can also be a second line of defence to forex reserves, besides buying reserves, it added.    

June 26, 2015 | 07:10 pm IST.