All about inflation and productivity.

"India's foreign exchange reserves fell to $623.98 billion, down by $1.8 billion as of the week ending January 17, 2025." "The primary contributor of this decline were the foreign currency assets that declined by $2.87 billion to settle at $533.13 billion." ET. "RBI sold $20 billion from its forex reserves to stabilize the rupee in Nov." "On RBI's forex intervention, Nomura notes that the central bank net sold approximately $89.4 billion, including spot and forward transactions, since October 2024" and still has "headroom for another $138 billion worth sales." TOI. In a bid to protect the rupee the Reserve Bank of India (RBI) permitted the use of Special Rupee Vostro Account (SRVA) with Russia, Mauritius, Sri Lanka, Malaysia, Myanmar, Singapore, Israel and Germany. DH. Imports into India would be paid for in rupees into these accounts and can then be used for buying exports from India. That only works if trade with a particular country is equal and the balance is about zero. By May 2023, "Russia has accumulated billions of rupees in Indian banks which it can't use, Foreign Minister Sergei Lavrov said.., pointing to the ballooning trade surplus with the South Asian nation (India)." ET. The RBI does not stop trying. Now it is allowing individuals living outside India to open rupee accounts in overseas branches of banks with authorised dealer (AD) licences. These accounts would allow non-resident Indians (NRIs) to receive payments in rupees or exports to India which they can use for imports from India or for remittances. This is not expected to make much difference because the rupee is a non-convertible currency, wrote Gopika Gopakumar. The rupee depreciated 0.4% annually between 2000 and 2004, 3.4% between 2005 and 2014 and by 3.5% annually between 2015 and 2025, wrote Nilanjan Banik. Because, "Historically, the US has a lower inflation rate than India." and India's productivity is much lower than that of the US. "According to ILO estimates for 2025, India is producing an output of $25,431 per worker, below America's average of $153,446 per worker." "The BIS 'Triennial Central Bank Survey: OTC Foreign Exchange Turnover in April 2022' estimated global trading in forex markets to average $7.5 trillion per day. This year's survey could show slightly above $9 trillion." Large banks can influence emerging market currencies. Although the rupee is non convertible, "Non-deliverable forwards (NDFs) have become a major challenge for emerging economies," wrote Soumya Kanti Ghosh & Ashish Kumar." "Being offshore without physical settlements, RBI will have to think of counterintuitive ways to curb malpractices woven around NDF, hailed frequently as precognitive intuitions." ET. At $9 trillion per day, forex transactions are two and a half times India's annual GDP of $3.94 trillion in 2024 (Forbes). On the one hand the RBI is trying to get others to use the rupee, while on the other it thinks it can restrain others from trying to find the real exchange value of the currency. Instead, the RBI should control consumer price (CPI) inflation which was 5.22% in December 2024 (mospi.gov) slightly lower than 5.48% in November (pib.gov.in) and the government should work to increase jobs and reduce taxes instead of trying to win every election by increasing handouts which are expected to cost Rs 4.2 trillion this fiscal (TOI). Citizens have no options but foreigners will take advantage. Can't fight the figures.