Forex Reserves of India Exceeds $100 Billion.

According to International Monetary Fund and Governmental Agencies, India today ranks sixth in Foreign Exchange Reserves. The rankings of some countries are as follows :
Japan - 644 BillionChina - 347 BillionTaiwan - 198 BillionS.Korea - 150 BillionHong Kong - 112 BillionIndia - 100 BillionSingapore – 94 BillionUSA – 87 BillionRussia – 66 BillionUK – 46 BillionPakistan – 13 Billion
The large growth in reserve shows underlying financial strength and savings power of the country. Finance Minister Jaswant Singh said India's record forex reserves will add greater momentum to the reforms to attain significantly higher growth. "Our reserves will add greater momentum to bolder economic reforms, enabling the country to achieve significantly higher growth. This will also provide a cushion facilitating higher level of investment activity," he said. "This level of forex reserves reinforces my conviction that our aim of self-reliance for which we have worked for several decades since independence, has now comfortably been reached at this point of great confidence," he said, adding, "The nation is on a much higher growth path."What does this really mean for India and South Asia? It really means pressure on Indian Rupees is now much less and unless India like China and Japan decides to keep the currency rate lower, Indian Rupees has the potential of rising rapidly against dollar and less rapidly against Euro. Interestingly all the countries above in the ranking in Forex Reserve - Japan, China, Taiwan, South Korea, and Hong Kong is a net exporter – India is a net importer. As Western counties start questioning net exporter countries about their trade and currency manipulation practices, their foreign exchange reserves will inevitably reduce. For example China keeps its currency at an artificially low level by not allowing it to trade in the open international market and pegging the same to dollar at an artificial rate. Japan buys dollar in the open market and sells yen to keep yen low and use the proceeds to buy US Treasury bonds to keep the US interest rates low. China also buys US treasuries to keep US interest rate low. Keeping US interest rate low allows US economy to grow and in turn Japan and US sells more to US to increase their reserves. Recently US Government has taken a harder look at this practice and thing are in the process of changing. India on the other hand is not a net exporter. When thing are brought to parity and fairness, India will still continue to grow its foreign currency reserves. Does this mean India is really rich? Not quite so. India’s balance of payments still needs a lot of improvement. As for natural resources India rank way lower – but so does Japan. What it really means is the fact that the country has a tremendous advantage through self-reliance, a massive growing middle class, a very conservative habit of saving and avoiding debt and NRIs who believe in investing and saving in India.India’s biggest advantage is her talented English-speaking workforce. If India can avoid another war for the next twenty years, it is possible that India’s forex reserve will be at the top position in the world. This "historic high" has been achieved despite prepayment of $5.0 billion of external debt this calendar year, $5.5 billion outflow for redemption of Resurgent India Bonds and a contribution of $498 million to the International Monetary Fund, Finance Minister Jaswant Singh asserted. Singh said the forex reserves had increased by about $94 billion since 1991, while the external debt had gone up by only $20 billion. Singh said RBI has assured that the forex reserves would continue to be used to contain volatility, provide comfort to launch policy measures for accelerated growth and to withstand any possible supply shock. He was appreciative of RBI for prudent management of exchange rate, interest rate, liquidity conditions and forex reserves. "These policies, I am assured by the RBI, will continue to be followed keeping in view the overriding macro objective of growth, price stability and financial stability," he said. "This level of forex reserves reinforces my conviction that our aim of self-reliance for which we have worked for several decades since independence, has now comfortably been reached at this point of great confidence," Singh said, adding, "The nation is on a much higher growth path." "The nation's forex reserves contribute very significantly to our national security, apart from providing a much greater degree of national autonomy to the conduct of public policy," the minister said. The reserves would, in addition, enable Indian companies and financial intermediaries to access needed foreign currency resources for their domestic and global activities at finer and more favorable terms than ever before, Sigh added.Standard & Poor's on December 16 revised the outlook on India's 'BB' long-term foreign currency rating from negative to stable, reflecting the improving external finances. "Rapidly increasing external liquidity, sustained by growing foreign exchange reserves (exceeding 700 per cent of short-term debt), and modest debt service payments sparked the revision in the foreign currency outlook," a S&P release said, quoting credit analyst Takahira Ogawa, director in the Asia-Pacific Sovereign Ratings Group.Are we in golden days ahead? It depends on Indian politicians – how they deal with International politics and Kashmir. A war with Pakistan can drain India out in no time. But given there will be no war with any neighbor, India stands an excellence chance in becoming a major economic super power whose power does not depend entirely on selling to US and other Western countries at an artificially low cost.
Most of the country's reserves are in U.S. dollars, but the country's central bank has been reluctant to invest the growing reserves in assets overseas. That leaves the central bank vulnerable to the greenback, which has lost 15 percent of its value against the Euro this year. "Internationally, the dollar is in a very grave risk. If it collapses, the RBI will be the first calamity," said N. Subramanian at Basix Forex and Financial Solutions, a Bombay-based consultancy. "If I were the RBI governor, I would accumulate gold (and sell dollars)," Subramanian said, referring to the worldwide spurt in gold prices in recent months. Others suggested the government could pay a part of its external debt, which currently stands at US$109 billion. "Holding foreign exchange involves a cost. So India should use up some of those reserves to reduce liabilities," Nimisha T. Jain at Mecklai Financial and Commercial Services. Foreign exchange reserves are the stock of currencies, gold and other tradable assets that a country keeps to buy its imports and make international payments. Only US$4 billion of the US$96.04 billion in reserves is held in gold. The rest is mostly in U.S. dollars, with a small share in Euros. The central bank's reluctance to aggressively invest its reserves stems from fears that India could repeat the balance of payment crisis it faced in mid-1991, said P. Chidambaram, a former finance minister. At the time, India was left with just enough reserves to fund six weeks of imports. The central bank was forced to sell its gold abroad to raise money and avoid default. But now, India's annual trade deficit -- the gap between imports and exports -- is only around US$15 billion, or less than one-sixth of its foreign reserves.