chief India economist, Barclays Capital
over 10 months’ imports, is still lower than the pre-crisis levels in 2008, while recovering from the 2012-13 lows,” said Siddhartha Sanyal, chief India economist, Barclays Capital. “Going ahead, this number will depend on two factors: the pace at which the central bank chooses to build
reserves and the im-
port bill. For a country like India, the import bill depends materially on commodity price levels. The central banks can manage the former to an extent, but has little control over the latter, which depends on global commodity prices.” The ratio depends on the level of foreign exchange reserves in an economy and its import bill in a given month. There are fears that the reserves could fall if the US Fed decides to unwind quantitative easing resulting in forex pullout from emerging markets, including India. But, India’s import bill is sensitive to global commodity prices if they rise or if the economy revives resulting to higher import demand. “Moreover, the ratio could again slip in the future in case of stronger economic recovery and faster growth in imports demand. Thus, although building reserves comes at a cost, we feel that the RBI will likely maintain tolerance for the safer option of maintaining somewhat higher foreign exchange reserves,” Sanyal said. “For countries with less open capital accounts, import cover is often seen as a relevant measure, highlighting how long imports can be sustained in the event of a shock,” an IMF research paper of 2015 stated.