InvestorQ : Is there any way that India can really leverage on a large forex reserve of over $500 billion?
Arti Chavan made post

Is there any way that India can really leverage on a large forex reserve of over $500 billion?

Answer
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3 months ago


Two ways of leveraging the huge forex reserves have been discussed from time to time. In Union Budget 2019, the Finance Minister had spoken at length about the proposal to issue sovereign bonds. Currently, Indian corporates borrow in dollars but the government does not have any sovereign debt. The idea of raising debt of $5 billion from the global markets was eventually struck down by the PMO as it would put sovereign ratings at risk. However, the forex chest of $501 billion is enough to cover 14 months of enhanced imports at old levels. That is extremely comfortable by BRICS standards. Another way to leverage the forex reserves would be the Sovereign Fund route on the lines of Temasek, ADIA and Norwegian Pensions. In a sovereign fund, the government can invest the forex reserves in productive assets like equities, bonds and real estate across the world and diversify the risk. The forex chest needs to be put to productive use rather than idling in low interest assets like US treasuries. This can ensure more profitable use of the reserves.