It was barely a year ago that the condition of the India rupee was 'fit to be in ICU', as declared by the media. Global media called the rupee one of the world's "fragile five" currencies. This was as India struggled with a chronic current account deficit that was eating into its limited forex reserves. Between now and then, India's macroeconomic fundamentals have not changed dramatically. However, the status of the rupee has certainly improved. This is all thanks to the consistent flow of FII money in anticipation of a change in government. The curb on gold imports and Indian banks being allowed to raise dollar deposits also helped.
India's forex reserves: Nothing to worry about?
All put together, India's foreign exchange reserves stood a tad over US$ 303 bn at the end of March 2014. This is about 10% higher on YoY basis. The only fiscal years that ended with higher reserves were the years ending March 2008 and March 2011. Having said that, India's current forex reserve covers just 8 months of imports. And as per Wall Street Journal, most economists believe that the RBI should stock up more dollars. Especially in the event of unwinding of the QE a stronger forex cover can make India less vulnerable.
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