Foreign exchange reserves in India can be used to cool down the volatility in the rupee as it is episodic and not structural, said experts while speaking at a panel at the Debt Market Summit 2025.

“We earn foreign exchange reserves from excess FPI that comes in and that is added to buffers.Those buffers are meant to be used in years when there is an outflow and it is normally because of global risk or some global shock as we are living through currently. But markets get very, very perturbed whenever reserves are being drawn down,” said Ashima Goyal, Emeritus Professor, IGIDR and former member of the Monetary Policy Committee, in the panel discussion.  India currently has a foreign exchange reserves of $688.9 billion including gold reserves. 

Further she said that, in 35 years after liberalisation, we have had an overall balance of payment deficit only in six of them. The rest of them were capital account surplus years, she said stressing that the current depreciation was not an exceptional episode.  

The current depreciation is more on account of people fearing that the the currency might depreciate and therefore creating hedges, adding that market players should be more “mature” in handling the crisis. The comments assume significance when Prime Minister Narendra Modi had raised concerns about reducing foreign exchange reserves and had suggested cutting down expenses that can excessively deplete foreign exchange. 

Speaking on the policy prescriptions to follow in such a situation, Pranav Chawda , the Chief Executive Officer of JP Morgan Chase Bank, said that the RBI’s move relaxing External Commercial Borrowings were good enough and any structural reforms should not be to tackle the current episode but for a long term shift. 

”I would say there are a lot of reforms we should do it, but not under time and those reforms we should do it as a structural change; that it is not episodic for the current environment that we are doing some reforms” Mr. Chawda said.