https://in.news.yahoo.com/indias-forex-exchange-reserves-surge-030850560.html
US $ 608 billion … as on date .. in gold bullion and a basket of foreign “hard currency” and Special Drawing Rights(SDRs) all stashed away in the safe vaults and on the books of accounts of the Reserve Bank of India!
The purpose for which individuals and nations accumulate Reserves is mainly to meet the sudden, unexpected challenge of any emergency, crisis, contingency that may arise on a proverbial “rainy day” … or of any other terrible “black swan” event that may occur and overwhelm the country.
A black swan is an unpredictable event that is beyond what is normally expected of a situation and has potentially severe consequences. Black swan events are characterized by their extreme rarity, severe impact, and the widespread insistence they were obvious in hindsight.
An investor and mathematician Nassim Nicholas Taleb was the first man in the world to define a “black swan” event when it synced perfectly with the global financial crisis of 2007-8. He wrote in his book about Black Swan: “First, it is an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility. Second, it carries an extreme ‘impact.’ Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable.”
Now, going by the above definition, it fits exactly the Wuhan Virus crisis even more than it ever explained the Global Financial Crisis of 2008. What we in India are today going through is a terrible “black swan” event in the form of a tragic pandemic caused by a virus that as on date remains undefeated. Death, disease, disruption, demoralisation and despair prevail throughout the country.
If ever there was a nation-wide emergency and calamity to hit pan-India in its entire history , it must surely be this present one in the throes of which we are all caught and are trying to cope with. If ever there was a moment in history when India needed to put to effective use its national Reserves of Foreign Currency Assets — FCA— it must surely be it the one in which we live today.
The question I ask myself now is this: to what ends does India’s $608 million serve in helping its citizens to deal with the pandemic that seems to have crippled their daily economic and social life? How does it help in improving the situation of Food Security, Unemployment, Health, Education and Housing ?
I listen daily to what the Government is saying it is doing to manage the crisis of the grave moment. But I have not yet heard of one idea, plan or proposal of either the RBI of the Ministry of Finance that tells me how the massive Reserves of the country will be used for thr very purpose for which they were being accumulated in the first place viz. to meet and deal with a national calamity and emergency.
Are the Foreign Reserves of India meant merely to give its citizens a false sense of financial security? Or, a matter to boast about in international quarters and forums such as IMF, World Bank or Davos ? Forex Reserves serve only to be flaunted as a badge of national pride?
As an individual I know clearly how to .. and to what purpose household family Reserves of money and assets I shall be putting to use in the present time of crisis.
As a citizen however I have no idea at all how the country’s Reserves are being put to use to ease the national crisis. And I am still waiting for either the RBI Governor or the Union Finance Minister to say something on the matter.
My deepest fear is that so true to Taleb’s definition of the Black Swan, this pandemic crisis too “in spite of its outlier status” will only make all the central bankers, economists and politicians of India typify “human nature (that) makes us concoct explanations for its occurrence after the fact, making it explainable and predictable.” That would be too late and too little on their part to make any difference to the lives of millions of naive Indians like you and me who had always been led to believe that $680 billion of Reserves would assure us plenty of shelter and protection on a very bad, cold and terribly unpredictable “rainy day”…
Sudarshan Madabushi