...............Besides short-term debt, sharp swings in capital flows are also a contingency that must be kept in mind in judging whether or not our reserves are adequate. This was highlighted by the SS Tarapore committee on capital account convertibility way back in 1997. One precondition was that cumulative portfolio investment inflows and short-term debt must not be more than 60 per cent of our foreign exchange reserves. In other words, our forex reserves must be plentiful – in fact, with a margin to spare — to take care of heightened volatility in capital flows in and out of the Indian economy and to meet our most pressing debt obligations without defaulting!............
Read - FPJ
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