Foreign Exchange, FDI & External Debt (Part – II)

Masala Bonds are bonds through which Indian entities can raise money from foreign markets in rupees, and not in foreign currency. Masala Bonds are rupee-denominated borrowings issued by Indian entities in overseas market. The objective of Masala Bonds is to fund infrastructure projects in India, fuel internal growth via borrowing and internationalize the Indian currency. The issuer of these bonds is shielded against the risk of currency fluctuations, typically associated with borrowing in Indian currency.

Masala bonds are bonds issued outside India but denominated in Indian rupees, rather than local currency. The main difference associated with the masala bond is that it makes the investor to bear the currency risk not the borrower as opposite to the dollar bonds. The first Masala bond was issued in November, 2014 by the World Bank-backed IFC (International Finance Corporation) to fund infrastructure projects in India. On 29 September, 2015, RBI allowed Indian corporates to raise money through the issuance of rupee bonds (also called Masala bonds) outside India. It falls within the External Commercial Borrowings (ECB).

Administered price mechanism (APM) in oil sector in India was abolished on 1.4.2002 during the finance ministership of Yashwant Sinha. Consequently Oil-Pool-Account was abolished. Even though APM was dismantled effective 1.4.2002, since 2004, the consumers of sensitive petroleum products viz. Petrol (decontrolled w.e.f. 26.06.2010), Diesel (decontrolled w.e.f. 19.10.2014), PDS Kerosene and Domestic LPG were being insulated from the impact of unprecedented P.S.C. (Pre) 2016 high international oil prices by the Public Sector Oil Marketing Companies (OMCs) namely IOCL, HPCL & BPCL

Import cover describes the number of months of imports that could be paid for by a country's international reserves. At end of December, 2023, foreign exchange reserve cover of imports (on balance of Payments basis) increased to 11 months from 10.4 months at end - September 2023.

In the fiscal year 2018-19 (end-March, 2019), the total foreign exchange reserves of India was at Rs. 28,55,882 crore. In the fiscal year 2023-24 (as on 29 March, 2024), it is increased to Rs. 53,84,281 crore (US $ 645.58 billion).

According to the Reserve Bank of India, the total values of the foreign exchange reserves of India in 2018-19 (in end- March 2019) was at US $ 412871 million. As on 29 March, 2024, India's foreign exchange reserves stood at US $ 645.58 billion.

India's foreign exchange reserves comprise foreign currency assets (FCAs), gold reserves, special drawing rights (SDRs) and the country's reserve tranche position (RTP) with the International Monetary Fund (IMF). It is maintained by the Reserve Bank of India for the Indian Government. So all given statements are true except statement of option (c).

Foreign currency assets (FCAs) has largest share in the foreign exchange reserves of India. As on 29 March, 2024, the value of components of India's foreign exchange reserves is as follows:

      Foreign Exchange Reserves of India

India's foreign exchange reserves consist of the foreign currency assets, gold, SDRs and the reserve tranche position in the International Monetary Fund. It does not consist of the loans from World Bank or from foreign countries.

India's foreign exchange reserves consist of the foreign currency assets, gold, SDRs and the reserve tranche position in the International Monetary Fund. It does not consist of the loans from World Bank or from foreign countries.