ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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India's Foreign Exchange Reserves: A Shield of Comfort or an Albatross?

Though the market value of volatile foreign capital deployed in the country is uncertain, the current magnitude is likely to exceed India's foreign exchange reserves by a significant margin. Even if the authorities follow conservative fiscal and monetary policies, the country can still face a balance of payments crisis. Moreover, the foreign exchange drain, highly volatile and mainly on account of profit-taking by foreign institutional investors, is currently very high in relation to India's gross domestic product, prompting a comparison with the tribute extracted by the British during the latter part of the colonial era.

liability dollarisation as a risk factor. Most banks, after all, allow premature withdrawal against a small reduction in the interest rate.

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