India’s foreign exchange reserves must scale up to at least $1 trillion to give the central bank adequate firepower for market interventions, a former Reserve Bank of India official has argued, the Business Standard reported.
Michael Patra, who served as RBI Deputy Governor until early 2025, made the case in a piece published on BasisPoint Insight. “The level of reserves is also important from a market sensitivity point of view,” he wrote. “Punting against such a level should be beyond the reach of the opportunistic and/or the faint-hearted.”
Patra broke down the $1 trillion figure into two components. Approximately $350 billion would be required to service all debt obligations falling due within a year, while an additional $650 billion would act as a shield against a sudden flight of foreign portfolio capital.
India’s current reserves stand at a record $728.5 billion, recorded in February, leaving a considerable gap from the target.
During his tenure at the RBI, Patra oversaw a phase of substantial reserve accumulation as the bank absorbed global capital inflows. The central bank deployed those reserves to smoothen exchange rate movements, keeping the rupee among the least volatile currencies globally.
That relative calm is now under strain. The RBI has intensified its interventions in the forex market in recent weeks after the rupee touched a record low, driven by a spike in crude oil prices linked to the ongoing conflict in Iran, which has heightened risks for India’s oil-dependent economy.
Despite the current turbulence, Patra maintains that a gradual annual depreciation of 4 to 5 per cent remains consistent with India’s macroeconomic fundamentals, particularly its saving-investment gap. “The track record shows that the RBI has never resisted this order of movement; it has effectively enabled a glide path rather than jerky plunges or downshifts,” he wrote.
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