Amid rising global geopolitical uncertainty and intensifying financial and commodity market volatility, policymakers and economists are sharpening their focus on building economic resilience through stronger reserve buffers.
After finance minister Nirmala Sitharaman informed Parliament of the government’s plan to create a ₹1-trillion economic stabilisation fund to provide fiscal headroom in times of global shocks, former Reserve Bank of India deputy governor Michael Debabrata Patra has argued for building a much larger foreign exchange reserve buffer of at least $1 trillion.
In an article published on BasisPoint Insight, Patra emphasised that the level of reserves plays a crucial role in shaping market confidence and deterring speculative attacks. “The level of reserves is important from a market sensitivity point of view,” he wrote, adding that betting against such a large reserve position would be “beyond the reach of the opportunistic and/or the faint-hearted”.
His remarks come at a time when India’s external position is facing renewed strain. The rupee weakened further on Tuesday, declining 12 paise to settle at a low of 92.40 against the US dollar, as rising crude oil prices and sustained foreign fund outflows linked to the West Asia crisis weighed on sentiments.
Data released by the Reserve Bank of India showed that the country’s foreign exchange reserves dropped sharply by $11.68 billion to $716.81 billion in the week ended March 6, compared with $728.49 billion in the previous week. The decline reflects aggressive dollar sales by the central bank to stabilise the currency.
Patra outlined two key buffers that, in his view, justify the $1 trillion reserve target. First, reserves must be adequate to cover all external debt obligations falling due within one year, estimated at around $300 billion to $350 billion. Second, they should provide a cushion against sudden and prolonged foreign portfolio investment outflows.
He noted that such outflows have been significant since 2022-23 and could persist under adverse global conditions. Based on current market values, he suggested that reserves should cover 60–65 per cent of the total stock of portfolio investments, implying an additional buffer of $600 billion to $650 billion.
Taken together, these requirements push the optimal reserve level to at least $1 trillion, with the exact figure depending on the share of liquid assets available for immediate intervention.
Patra also indicated that achieving this level is feasible over a three-year horizon, in line with the historical pace of reserve money expansion, which has averaged $60 billion to $65 billion annually over the past two decades.
Separately, the parliamentary standing committee on finance, chaired by Bhartruhari Mahtab, has called for a strategic energy mitigation framework to shield the economy from oil price shocks.
The committee warned of a potential “triple whammy” of surging crude prices, heightened market volatility, and maritime disruptions arising from the West Asia conflict.
It noted that while GDP growth of 7–7.4 per cent and inflation near 2 per cent may be sustainable at oil prices up to $90 per barrel, a spike toward $130 could significantly derail fiscal deficit targets of 4.3–4.4 per cent.