Q.3) The ascending stock of forex reserves in India has led to the view this will enable the sole devotion of monetary policy to domestic objectives. Do you agree with this view? Give reasons in support of your agreement. (10 Marks)

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Swatantra

“Mentor’s Comments”

https://www.financialexpress.com/opinion/high-forex-reserves-are-no-guarantee-of-monetary-policy-independence/2288861/
In the intro, mention that recently India’s forex reserves touched a lifetime high of $610 billion.
In the body, first discuss the significance of forex reserves for a country and the purpose it serves. In the next part, give your opinion in support or against the view that such level is enough for India to tide over the various factors that affect the forex reserves as mentioned in the article.
Conclude by mentioning that when the economy is open, it is more prudent to let market forces play out a bit than persist with a stance that could turn unsustainable despite the high reserves.

Comments

6 responses to “Q.3) The ascending stock of forex reserves in India has led to the view this will enable the sole devotion of monetary policy to domestic objectives. Do you agree with this view? Give reasons in support of your agreement. (10 Marks)”

July 14, 2021

SUMITA DOWERAH

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1. July 31, 2021
  
  Swatantra
  
  Sumita
  
  Introduction is fine, points about forex reserves are also fine.
  
  After that, it will be better if you don’t directly mention yes/no in your opinion first, rather first justify it. Reasons for rise are fine, then mention how forex reserves can be impacted drastically by jump in the import bill(rise in oil prices), lagging exports and continuous outflow of portfolio capital. Also mention it can be impacted by rising concerns about growth outlook, domestic rate cuts and eventual depreciation, and tightening of US monetary policy. Also, investors reassess positions, including global factors, whatever be the reserves’ stock.
  
  Then mention the current example of high inflation causing concerns inspite of low bond yields, borrowing costs and interest rates.
  
  Then you can mention that no level of reserves is a foolproof guarantee for macroeconomic stability or interest rate immunity.
  
  Conclusion is fine. Keep writing. 🙂
July 14, 2021

ankita thakur

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1. July 31, 2021
  
  Swatantra
  
  Ankita
  
  Introduction is fine. After that mention some technical factors how forex reserves get impacted. Sub-heading ‘opinion against forex reserves’ is not proper.
  
  Mention how forex reserves can be impacted drastically by jump in the import bill(rise in oil prices), lagging exports and continuous outflow of portfolio capital. Also mention it can be impacted by rising concerns about growth outlook, domestic rate cuts and eventual depreciation, and tightening of US monetary policy. Then mention the points you have written about psychological factors etc.
  You can also write about the current example of high inflation causing concerns inspite of low bond yields, borrowing costs and interest rates.
  
  Then, finally you can mention that no level of reserves is a foolproof guarantee for macroeconomic stability or interest rate immunity.
  
  Conclusion is fine. Keep writing. 🙂
July 21, 2021

Deepali Rajan

Ref id 420326
@swatantra sir

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1. July 31, 2021
  
  Swatantra
  
  Deepali
  
  It is not clear whether you are agree whether sole devotion of monetary policy should be towards domestic objectives.
  
  Introduction is fin, bit about forex reserves is also fine. Then mention the link how forex reserves also get impacted by macroeconomic factors and interest rates.
  
  Mention how forex reserves can be impacted drastically by jump in the import bill(rise in oil prices), lagging exports and continuous outflow of portfolio capital. Also mention it can be impacted by rising concerns about growth outlook, domestic rate cuts and eventual depreciation, and tightening of US monetary policy. Then mention some points such as psychological factors, market confidence etc.
  You can also write about the current example of high inflation causing concerns inspite of low bond yields, borrowing costs and interest rates.
  
  Then, finally you can conclude by mentioning that no level of reserves is a foolproof guarantee for macroeconomic stability or interest rate immunity.
  
  Read some more about the topic. 2nd part of your answer needs more clarity.
  
  Keep writing. 🙂