High reserves: sign of strength or global weakness?

"China is on a rampage in Hong Kong," which is "Asia's top financial center", wrote an editorial in the Mint. "A race to replace it is already underway, with Singapore, Tokyo and Dubai as contenders. But if Mumbai gets itself up to speed, it may have more than just a glimmer of a chance." In 2007, an expert committee "led by Percy Mistry submitted a report", but "Much of it was impractical". It recommended capital account convertibility for the India rupee, "for the Reserve Bank of India (RBI) to quit its role as the government's debt manager to focus on currency stability" and for the RBI to encourage a thriving bond market. However, much of the banking sector is controlled by the government and is forced to lend to poorer sectors of the economy according to socialist policies followed by every political party. Are we better off this time round? India's foreign exchange reserves jumped to $506.84 billion, compared to around $248 billion in 2007. "The level of reserves is enough to cover 13 months of imports and is equivalent to nearly a fifth of the country's gross domestic product (GDP). It's also the fifth-largest in the world after China, Japan, Switzerland and Russia, according to the International Monetary Fund (IMF)."  This is due in part to a fall in imports which has resulted in a current account surplus of $600 million in the January-March quarter of 2020 compared to a deficit of $4.5 billion over the same period last year. "The surplus was generated because of the trade deficit shrinking to $35 billion and a sharp rise in net invisible receipts at $35.6 billion as compared to the year ago period." Export of services "increased to $22 billion in March as against $21.3 billion a year ago", remittances from Indians working abroad jumped 14.8% to $20.6 billion and foreign direct investment (FDI) doubled to $12 billion during the quarter. A large chunk of FDI came when billionaire Mukesh Ambani sold stakes in his companies for some $15 billion. "A strong reserve buffer is a cushion against market volatility, and gives foreign investors and credit rating companies added comfort that the government can meet its debt obligations despite a deteriorating fiscal outlook and the economy's first likely contraction in more than four decades," reported Bloomberg. However, "Data from the central bank show India's external debt rose to $558.5 billion as of March 2020 from $474.4 billion five years ago." Trade deficit with China fell to $48.66 billion in 2019-20 from $53.56 billion in 2018-19 and $63 billion in 2017-18.  The World Bank expects remittances from expatriate Indians to drop by 22% because of global economic contraction due to the coronavirus. India received $83.1 billion from remittances in 2019. If the virus is contained by a vaccine the global economy will recover fast and oil prices will rise, and as our economy starts to grow imports will increase. Investors will accept Mumbai as a financial center only if money is allowed to flow in and out freely. Daily foreign currency transactions are over $6.6 trillion per day. Perhaps, we should wait.