A $700 billion war chest: India's external sector needs skilful management

The important question is what if the insurance of higher reserves and stability in currency attracts substantially more capital inflows?

Increasing geopolitical tensions in West Asia have put pressure on the Indian rupee, which breached the 84 mark against the US dollar last week. There are primarily two reasons why the rupee could witness volatility if the conflict escalates. First, the conflict could increase risk aversion among foreign investors, resulting in capital outflows. Second, it could potentially disrupt the supply of crude oil, leading to a significant increase in prices. Since India imports the bulk of its crude oil needs, this could increase dollar demand. Higher energy prices are always a risk for India. While oil prices