Last week the Reserve Bank of India (RBI) added $ 1.1 bn to foreign exchange reserves. There are reports that schemes are being formulated to encourage the Resurgent India Bond (RIB) funds to stay with India. Finance minster Jaswant Singh has said that India will hold $ 100 bn in reserves by the end of the year.
There may or may not be merit in holding extremely large reserves. This article is about one element of the cost of building these reserves. Clarity on the costs will help us think more clearly about the choices involved.
Though the RBI mentions that the policy has costs in the latest Annual Report, no attempt is made to measure them. In a recent paper,
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