The high level of forex reserves in the country gives a feeling of comfort and boosts investor confidence. But now there is an increasing pressure on RBI to make productive use of these reserves.

Last year, India reached a milestone when it accumulated forex reserves of $100 bn. It surely is a milestone because India has come a long way from the 1991 crises where the forex reserves had depleted to such an extent that it had to pledge its gold reserves outside the country. Since the inception of economic reforms there has been a steady increase in the forex reserves. The reserves that stood at $5.8 bn in March 1991 have risen to $118.5 bn by April2004.

Listing the reasons for the increase in reserves in its first ever foreign exchange report (February 2004) the Central Bank states that the increase in reserves in the recent period have been on account of capital and other inflows. The major sources of this increase being (a) Foreign investment (b) Banking Capital (c) Increase in other types of capital inflows (d) Short-term credit and (e) Valuation changes in reserves.

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