India should build a foreign exchange reserve buffer of at least $1 trillion to ensure strong market stability and effective intervention capacity, according to former RBI Deputy Governor Michael Patra.
The proposed $1 trillion benchmark is based on 2 key financial safeguards. Around $350 billion would be required to cover all short-term external debt obligations for 1 year, while an additional $650 billion would act as protection against a possible withdrawal of foreign portfolio investments.
“The level of reserves is also important from a market sensitivity point of view,” Patra wrote in an article on a financial insights platform. “Punting against such a level should be beyond the reach of the opportunistic and/or the faint-hearted.”
India’s forex reserves recently touched a record $728.5 billion in February. During his tenure, which ended in early 2025, Patra oversaw a phase of strong reserve accumulation as the central bank absorbed global capital inflows. In the later period, these reserves were actively used to manage currency volatility, helping the rupee remain among the least volatile currencies globally.
However, recent developments have put this stability under pressure. The RBI has increased its intervention in currency markets after the rupee fell to a record low. This decline has been driven by rising crude oil prices linked to the ongoing conflict in Iran, posing risks for India’s oil-dependent economy.
Despite these challenges, Patra noted that a 4%–5% annual depreciation of the rupee aligns with the country’s underlying economic fundamentals, particularly a moderate gap between savings and investments.
“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.
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