India Should Target $1 Trillion in Reserves, Ex-RBI Deputy Says

India needs a forex reserve buffer of at least $1 trillion to ensure robust intervention capacity, according to a former central bank official.

“The level of reserves is also important from a market sensitivity point of view,” former deputy governor Michael Patra wrote in an on BasisPoint Insight. “Punting against such a level should be beyond the reach of the opportunistic and/or the faint-hearted.”

According to Patra, the $1 trillion target is derived from two critical buffers: roughly $350 billion to cover all one-year debt obligations and an additional $650 billion to protect against a potential exodus of foreign portfolio capital. India’s forex reserves rose to a record $728.5 billion in February.

Before leaving the RBI in early 2025, Patra managed a period of significant reserve growth as the bank soaked up global . During the latter half of his tenure, the RBI utilized these reserves to currency fluctuations, making the rupee one of the least volatile currencies in the world.

That stability is now being tested. In recent weeks, the RBI has intervention in the currency market after the rupee slid to a record low as surging crude prices due to the war in Iran posed risks for India’s oil-importing economy.

Despite these pressures, Patra argues that a 4%-5% annual depreciation of the rupee is in line with fundamentals of a moderate saving-investment gap.

“The track record shows that the RBI has never resisted this order of movement; it has effectively enabled a glide path rather than jerky plunges or downshifts,” he wrote.