Prior to liberalization, Indian foreign exchange reserves were reduced to such a level that it was not sufficient enough to pay even for few weeks' imports. Continous depletion of foreign exchange reserves had forced the policy makers to open up the financial sector. The new reformative policy played a crucial role in enhancing foreign exchange reserves. This article analyzes various components, growth and utilization of foreign exchange reserves.

Political freedom and economic freedom in the last 60 years, have helped the Indian economy travel a long distance. The economy worked in a protected environment for a long time and was then transformed into a fully (probably) liberalized economy. The onus of it lies on our policy makers, who took the decision to go for hurricane reforms which have changed the growth trend of the economy. In the current fiscal year (2006-07), India has achieved a GDP growth rate of over 9% and most importantly all has been achieved in a democratic setup.

India is now growing; the main growth drivers of Indian economy are manufacturing and services sectors. In terms of public and private sectors, the actual player of growth is the private sector. The economic reform s of 1991 have created an era in which Indian economy is trying to realize its optimum potential Economic reforms in India or the policy measures introduced in India since 1991 were with a view to improve the efficiency and effectiveness of the economy. The components of new economic policy are Liberalization, Privatization and Globalization (LPG).

All these components were introduced in the economy to create a highly competitive environment to improve the productivity of the system. These reforms were introduced because of several reasons. The principal reasons were failure of the public sector to perform up to the desired level, the Gulf crisis, fiscal deficit, balance of payment crisis and most importantly declining foreign exchange reserves.

Treasury Management Magazine, Foreign Exchange Reserves, Financial Sector, Indian Rconomy, Liberalization, Privatization and Globalization, LPG, Gross Domestic Products, GDP, Economic Teforms, Foreign Direct Investment, FDI, International Monetary Fund, IMF, Foreign Commercial Banks.