"Sanjeev Sanyal, member of the economic advisory council to the prime minister, Saturday (yesterday) said that the country's internal market is in a good position and its macroeconomic stability is in a comfortable zone despite the ravage by the pandemic," and "the Indian economy has emerged stronger after that," ET. "India's fiscal and monetary sides currently have 'spaces' to be able to absorb a lot of shocks, and the country can easily allow its large foreign exchange reserves to 'burn' if necessary in order to cushion the system amid 'global difficulties'," Sanyal said. Whence comes this arrogance? If the Indian economy is stronger why the need to burn foreign currency? In July 2021, "The Reserve Bank of India (RBI) has reportedly bought up to even a billion dollars a day lately, four top foreign-exchange dealers at large financial institutions told ET, potentially risking paltry returns on its already record stash of foreign exchange. But the central bank's move is aimed at ensuring the rupee's competitiveness against a basket of emerging-market currencies that are also seeking a bigger share in global trade." In August 2020, the RBI was buying dollars because this releases more rupees into the banking system, allowing banks to lend more money, and to make the rupee weaker against the dollar, which helps exports by making our goods cheaper, CNBC. The rupee was getting stronger because of foreign investors. From 1998-1999 to the present financial year, foreign institutional investors (FIIs) have invested a net Rs 13 trillion in Indian shares, CDSL. This is because "the financial crisis of 2008 happened and the ensuing Great Recession, which slammed the brakes on the economy. The Fed (US Federal Reserve) then did the unthinkable: It slashed interest rates by 100 basis points (1%) to near zero," bankrate.com. Looking for higher returns, US funds poured money into Indian markets. "Ripple effects of public stock listings, such as those of Zomato, GR Infraprojects and Clean Science and Technology, are already being felt beyond Dalal Street (Bombay Stock Exchange), with Mint Road (RBI) intervening frequently in the currency market to mitigate the impact of surging overseas cash inflows and ensure a stable trading peg for the India rupee against the dollar." India needs foreign currency to pay for recurrent trade deficits. "India's trade deficit rose 87.5 percent to $192.41 billion in 2021-22 as against $102.63 billion in the previous year, the government data showed," NDTV. The foreign exchange reserves were built on carry trade which "is a trading strategy that involves borrowing at a low-interest rate and investing in an asset that provides a higher rate of return," Investopedia. "The US Federal Reserve's larger-than-expected 75 basis point interest rate hike...will likely push the RBI to step up its tightening cycle to maintain the differential between the two countries, traders and bankers said," ET. Excellent advice. Burning will only reduce the economy to ash.
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