The usage of forex reserve
A $70 billion decline in India’s foreign exchange reserves has occurred in the last ten months. In the past, India has accumulated these in an unconventional manner – which it is now using to defend the rupee.
Having peaked at $642.45 billion on September 3, India’s foreign exchange reserves have fallen to $572.71 billion as of July 15. In just over ten months, almost $70 billion has been lost.
What has caused the reserves to deplete so rapidly? The answer to this question lies in understanding how they accumulated in the first place. Foreign exchange reserves are typically built up when a country’s export earnings exceed its import payments. As a result of current account surpluses, the central bank accumulates reserves by absorbing excess foreign currency.
The most obvious comparison can be drawn with households or firms that accumulate savings or reserves based on their excess income over expenditures. A country’s current account surpluses may be invested in other countries, just as its savings/reserves are available to other households, firms, and governments. By doing so, it becomes a net exporter of ‘capital’ in addition to goods and services.
Comparisons can be drawn with households or firms that accumulate savings or reserves based on their excess income over expenditures. A country’s current account surplus can be invested in other countries, just as its savings and reserves can be used by other households, businesses, and governments. Additionally to exporting goods and services, it becomes a net exporter of ‘capital.’
The table below shows the top 12 countries with the highest foreign exchange reserves as of the end of 2021. Almost all of them run large and persistent current account surpluses. Consider China’s cumulative surpluses of $2.1 trillion over an 11-year period, which have helped build a reserve fund of $3.4 trillion. Over 2011-21, Germany’s current account surpluses totaled about $3.1 trillion but were mostly exported as capital, not accumulated as reserves.
There are only three countries (the US, Brazil, and India) that have accumulated substantial forex reserves. Out of the 11 years, only 2020 has seen a current account surplus on its balance of payments.
Despite accumulating over $400 billion in current account deficits during the 11 years prior to 2021, the country had $638.5 billion in reserves. Reserves have been built by importing capital; in other words, not from surpluses in its own current account.
As a result of the capital flows attracted by India, not only have its imports exceeded exports, but the country’s official reserves have also accumulated. There have been similar stories in the US and Brazil, although their current account deficits are larger than India’s and even relative to their reserves.
Moreover, the US is the owner of the reserve currency that is used in most international transactions, so forex reserves and current account balances are of little importance to it.
From March 31, 1990, to March 31, 2022, India’s forex reserves increased from $3.96 billion to $607.31 billion. Over four eight-year periods, Table 2 shows the sources of this increase. In the last eight years, more than half of the $603.35 billion accretion occurred under the Narendra Modi government.
Reserve accumulation has not occurred as a result of exports exceeding imports in any of the four periods. A combined merchandise trade deficit of nearly $1.2 trillion was recorded during the eight years from 2014-15 to 2021-22.
A net surplus of $968 billion on the “invisible” account of the balance of payments partially offset this deficit. Invisibles mainly consists of the export of software services, remittances by overseas Indians, and tourism. Historically, India’s receipts have always exceeded payments on loans, dividends, royalties, license fees, foreign travel, and assorted business and financial services.
With the invisible surpluses, the country has generally maintained manageable current account deficits, with some periods (1998-99 to 2005-06) and individual years (2001-02, 2002-03, 2003-04, and 2020-21) even registering surpluses. Between 1990-91 and 2021-22, India’s forex reserves have increased in all but five years due to manageable current account deficits and capital inflows of $25.2 billion and $68.4 billion, respectively. There were five years in these five categories: 1995-96, 2008-09, 2011-12, 2012-13, and 2018-19.
There is another source of reserve accretion or depletion, in addition to current account deficits and capital flows: the valuation effect. A country’s foreign exchange reserves are held in dollars as well as non-dollar currencies and gold, whose values are influenced by exchange rate movements and gold prices. Therefore, a depreciation of the US dollar or an increase in gold prices will lead to valuation gains in the existing stock of reserves. The non-dollar portion of reserves is also devalued by a strong dollar or a fall in gold prices.
In April-June 2022, India’s merchandise trade deficit was $70.8 billion. For the whole fiscal year, this could exceed $250 billion. There were $150.7 billion in net invisible receipts in 2021-22, compared to $126.1 billion and $132.9 billion in the previous two years. With an impending recession in the US and Europe, which could affect software exports, net Invisibles are likely to be closer to $140 billion this year.
In either case, the current account deficit would be upwards of $100-110 billion, breaking the previous record of $88.2 billion in 2012-13 and $78.2 billion in 2011-12. Therefore, capital flows will determine the extent of reserve drawdown.
From April-December of 2021-22, net capital inflows reached $87.5 billion. However, net outflows of $1.7 billion occurred in the last quarter (January-March). With global interest rates and bond yields rising due to monetary policy tightening by the US Federal Reserve and other major central banks, the prospects for capital inflows look dim for foreign portfolio investors, private equity firms, and start-up funds in the current fiscal year.
Over this fiscal year alone, India’s forex reserves have declined by $34.6 billion from their peak in early September 2021. The Reserve Bank of India has shown willingness to use its reserves to defend the rupee by ensuring “orderly evolution” of the exchange rate with “zero tolerance for volatile and bumpy movements,” to quote RBI governor Shaktikanta Das.
As a buffer against currency volatility, external shocks, and sudden stops in capital flows, forex reserves were accumulated. A rain umbrella is purchased to be used when it rains, as Das recently pointed out.
IIT Bombay to treat Mumbai’s sewage using new technology
A stormwater drain, called a nullah, transports rainwater to the sea, and Mumbai’s BMC plans to treat sewage from the drains.
Brihanmumbai Municipal Corporation (BMC) plans in-situ treatment of sewage from 25 storm water drains between Bandra and Dahisar to prevent it from flowing into the sea. Indian Institute of Technology-Bombay’s (IIT-B) N-Treat Technology will be used for this, officials said.
Nullahs, as they are popularly known in Mumbai, drain stormwater into the sea. In recent years, however, untreated sewage has been discharged directly into nullah channels from residential and commercial shanties that have mushroomed along their banks. To deal with pollution in the nullahs temporarily, the civic body will use N-Treat technology developed by SINE IIT Bombay Company or the Society for Innovation and Entrepreneurship at IIT-B.
Using screens, gates, silt traps, coconut fiber curtains for filtration, and sodium hypochlorite for disinfection, N-Treat is a seven-stage waste treatment process. According to the detailed project report for N-Treat, available on the civic body’s website, it is a natural and environmentally friendly method of treating sewage.
This method of treatment uses the in-situ, on-site method and does not require any additional space due to its set up within the nullah channels.
To prevent the entry of floating objects like plastic cups, paper dishes, polythene bags, sanitary napkins, or wood, the first stage involves screening. Three coarse screens are proposed by IIT-B, the first with a 60 mm spacing to remove large floating matter, the second with a 40 mm spacing, and the third with a 20 mm spacing. In the second stage, it has been proposed to construct a silt trap, which elevates the nullah’s bed for sedimentation and creates an incline.
In the next three stages, coconut fiber curtains will be installed to create ‘bio zones’ that act as filters and promote biofilm growth, which promotes organic matter decomposition. There has been a proposal to create a floating wetland with aquatic vegetation planted on floating mats.
Furthermore, IIT-B proposes suspending floating rafts vertically, called florafts, instead of a floating bed on the surface. “Their hanging roots would provide a large surface area for passive filtration and microbial consortium development, according to their proposal. Floating wetlands provide plants with nutrition directly from the water column, reducing organic and inorganic pollutants.” The final step of sewage treatment is disinfection with sodium hypochlorite, which kills bacteria.
“BMC approached IIT-B for a Detailed Project Report on the project,” a senior civic official said. Since it does not require manual pumping, saves electricity, and does not require extensive manpower for maintenance, the N-Treat method recommended to the civic body is cost-effective.
The floating matter will be removed daily, the silt deposits from the silt traps will be removed once every four months, and plants will be trimmed as necessary. Floating matter collected every day is disposed of at the nearest municipal waste collection point on a daily basis.
The project involves the collective water flow of 1,11,150 kiloliters per day from 25 nullahs along a 2.9-kilometer length. The project will take place over the next five-and-a-half years, and the first six months will be devoted to installation. It will be necessary to remove the equipment every year during the monsoon months, so that water can flow freely in the nullahs,” said the civic official.
India is planning to bring Cheetah from Africa.
In the Kuno wildlife sanctuary, the Indian government plans to introduce cheetahs 70 years after they were extinct.
The Indian government and Namibia signed a Memorandum of Understanding (MoU) on Wednesday to reintroduce the African cheetah to India. Bhupender Yadav, Minister of Environment, Forests and Climate Change, and Netumbo Nandi-Ndaitwah, Deputy Prime Minister and Foreign Minister of Namibia, signed the MoU in New Delhi, focusing on wildlife conservation and sustainable biodiversity use.
As of 1952, the Asiatic cheetah was declared extinct in India and is now a critically endangered species found only in Iran. The cheetah first appeared in India in 1947, but the three surviving males were shot by Maharaja Ramanuj Pratap Singh Deo of Surguja state in Guru Ghasidas National Park in Chhattisgarh.
In a tweet shortly after the MoU was signed, Yadav said, “The MoU aims to facilitate cheetah conservation in both countries through the exchange of expertise, sharing of good practices, and sustainable management of biodiversity.”
Over the past decade, the Indian government has gained more momentum in its plans to reintroduce cheetahs to India. The government attempted to import cheetahs from Iran because it was the only country that still had a surviving population, but Tehran had declined, mainly due to the critically low population numbers of the species.
In September 2009, during Jairam Ramesh’s tenure as environment minister, these plans gained traction when he touted the project as one involving reintroducing cheetahs from Namibia or other captive facilities in South Africa.
During these developments, the government’s Asiatic Lion Reintroduction Project was taking place, which involved reintroducing the last wild population of Asiatic lions in Gujarat’s Gir Forest National Park. Kuno Wildlife Sanctuary in Madhya Pradesh attempted to establish a new population of Asiatic lions. On several grounds, including that the lions were symbols of Gujarat, the Gujarat government bitterly opposed this proposed translocation.
The dispute reached the Supreme Court of India in April 2013, which threw a spanner in the works. According to its order, the apex court said that the decision taken by MoEF (Ministry of Environment, Forest and Climate Change) to introduce African cheetahs first to Kuno and then to Asiatic lions is arbitrary and illegal. “The order of the MoEF to introduce African cheetahs into Kuno cannot be sustained in the eye of the law, and the same is quashed.” The apex court objected to the introduction of a foreign species while ignoring the native species’ needs.
However, the Indian government refused to drop its proposal. Once again, the government’s National Tiger Conservation Authority petitioned the court for permission to reintroduce cheetahs into Kuno in 2016. According to the government, the cheetahs will contribute to the conservation of other species in the sanctuary, including that of the grasslands. African Cheetahs could be introduced to other national parks and sanctuaries in the country based on the government’s plans, as revealed by the legal proceedings.
According to Yadav, the reintroduction of the cheetah “in India has a larger goal of re-establishing ecological function in Indian grasslands that was lost to extinction due to Asiatic cheetah extinction.”. In accordance with IUCN guidelines on conservation translocations.”
The first batch of eight cheetahs from Namibia is expected to arrive in August this year, including four males and four females. According to the Environment Ministry of India, after the MoU was signed, “the main objective of the Cheetah reintroduction project in India is to establish a viable cheetah metapopulation in India that allows the cheetah to fulfill its functional role as a top predator and provide space for its expansion within its historical range, contributing to its global conservation.”
In the past, conservationists and wildlife experts have expressed concern about the government’s plans, but officials involved with the project have dismissed these concerns. There are concerns about the cheetahs’ ability to adapt to Kuno’s foreign environment and its differences in ecology.
The country experiences extreme temperatures. Although the vegetation is the same, we have more rainfall than they do (in Namibia). According to Amritanshu Singh, the Sub Divisional Officer of Kuno National Park’s Wildlife Division, who has been involved with the project, they also have sub-zero temperatures.
Initially, the cheetahs will be released in a 500-hectare, electrically-fenced area that will be monitored by park staff regularly during their initial release.
Leopards in Kuno will be moved out of the cheetah territory just before the cheetahs arrive to prevent conflict between the species. Conservationists also question whether the park has the capacity to provide adequate prey for cheetahs as part of their criticism of these reintroduction plans.
There is plenty of food available to them. In Kuno, for instance, we have 15,000 to 20,000 spotted deer for them,” Singh said. “The browse line tells us about a park’s herbivore carrying capacity, and Kuno does not have these lines,” he said. A browse line is a horizontal line formed by herbivores consuming leaves from lower branches of trees to a specific height. Indianexpress.com reported that plans were also in place to bring in chital from the Pench National Park in Madhya Pradesh in case of a shortage of prey.
edited and proofread by nikita sharma
