Fex Reserve

FOREIGN EXCHANGE RESERVE

645 bn dollor Fex reserve is an unimaginable landmark.

Fex reserve is a measure to understand economic health, capacity to face business competition  and overall  reputation of a nation, by outside world.

The said reserve is adequate to meet 17 months of import requirement vis a vis adequate level norm of 9 months.

The reserves are build up over the time due to consistent stable economic policies and their implementation strongly.

645 bn dollor is big amount, in Rs term its value comes to 5000000 crore. If used,  Sufficient  enough to fund all plans.

But before discussing how this power is useful to us we have to know how it is generated and accumulated.

After a more than 1000 years of black era for the nation we achieved independence.in 1947 but  Influenced by socialism and  to reward industrial houses who had financially  help the Congress party in their freedom movement, a protective economic policy was adopted.

The policy was famous as quota license Raj.

For instance,  in two wheeler sector, Bajaj ruled the nation or in steel or trucks sector,  it was TATA group. Birla and Mafatlal, in cloth manufacturing.

Through licensing system new players or foreign companies  were distanced.

The country and its citizen suffered badly, like

(1) poor quality product no reaserch and development.

(2) Limited capacity building resulting in paucity of product and as such black marketing and corruption. Bajaj scooter was sold on heavy premium, else 10 year waiting period. 

(3) unreasonable earnings by industrial houses kept them uninterested in export or facing world competition.

(4) No job creation and severe unemployment in the country.

The gist is that we failed to establish the nation on the pillars of ethic, value and descipline. 

Using political power,  how  to increase vote bank has been the focus of most of our leaders.

Ever increasing Military, fertilizer and petroleum  import, brought down foreign reserve to such a low level that in 1991 the govt had to sale/pledge gold to get help from IMF. 

IMF insisted for liberalisation and globalisation for the long term health of our economy.

Whatever some media post alleges about Modi govt that they are selling public sector or allowing private sector to invest in railway, port, airport, but the fact is it is just  next level of reforms,  accepted by nation in 1991.

The Fex reserve are balance accumulated due to foreign trade and activities. 

How these reserve increases. Let's see:

(1) Surpls from foreign trade. Of goods and services.(Export _import). 

(2) From incoming tourist.

(3) Remittances from NRIs.

(4) Foreign Direct Investment.

(5) Foreign institutional investment.

(6) Dollor loan by Indian companies.

From 108 bn dollor as on 2013 the present FDI is547. 2 bn $ as on  2021, registering fast rise  year after year.

Above mentioned six points are responsible for accumalation of Fex reserve.

The reserve is a resultant and  can be used as managing  exchange rate of our currency, by RBI, through market intervention.

The reserve will facilitate smooth import of machineries, raw materials, technology for existing Indian industrial houses and set up by foreign companies through FDI.

This fund can't be used by govt for meeting its financial or budgetary need however govt may meet its dollor requirement for import of oil, weapons or any other emergency need by paying equivalent value of Rs.