Foreign exchange reserves are being gradually depleted; Indian overseas diaspora members are 'sending money to save the country'.

【Answer 1】 To stabilize the continuously depreciating rupee, the Reserve Bank of India (RBI) has been aggressively selling dollars in the market recently. How fast is it depleting its foreign exchange reserves? In just over one month—from September to now—India’s foreign exchange reserves have already shrunk by $50 billion, leaving only $734.6 billion on the books. According to WallStreetCN’s report dated October 17, the RBI is paying an increasingly heavy price to defend the rupee. Since early September, India’s foreign exchange reserves have evaporated by $50 billion. Compounding this pressure is a massive negative dollar forward position totaling as much as $200 billion on the RBI’s books, alongside an additional ~$35 billion in forward dollar exposure across the banking system—pushing this currency defense operation toward a sustainability tipping point. Many people may not grasp what it truly means for a country to exhaust its foreign exchange reserves. Put simply, the U.S. dollar is the world’s hard currency—the universal medium for purchasing global goods and commodities. Once the central bank runs out of reserves, India would lack the dollars needed to import oil, fertilizers, and industrial raw materials. Gas stations could run dry; factories might halt production. The rupee would plunge instantly, triggering runaway inflation. With international oil prices hovering near $100 per barrel, India’s three state-owned refiners collectively spend $120 billion annually on oil imports. To prevent these refiners from competing for dollars in the open market—and thereby further undermining the rupee—the RBI began, as of October 12, directly using its foreign exchange reserves to purchase oil for them on international markets. In effect, every barrel of imported oil is now directly draining the RBI’s foreign exchange reserves. A recent Goldman Sachs report states: “The underlying real demand for dollars remains unchanged—it has merely shifted to being met by the RBI’s foreign exchange reserves.” While immediate pressure on the rupee in the spot market has eased, the cost is accelerated reserve depletion: so long as oil prices remain near $100 per barrel, each imported barrel of crude oil will directly consume foreign exchange reserves. Another major source of reserve outflow is foreign capital flight. This year, the rupee has repeatedly hit new lows against the dollar, falling to a record low closing level of 96.88 in early October—just shy of the 97 threshold. Currently, the yield spread between Indian and U.S. 10-year government bonds stands at only 200 basis points, making India less attractive to foreign investors. Amid rising global risk aversion and a lack of hot investment themes such as AI, foreign investors have net sold $31 billion worth of Indian equities this year. As the national treasury runs critically low, Indian authorities have resorted to their ultimate contingency measure: appealing to the overseas Indian diaspora to “send money to save the country.”

The RBI’s rupee defense has emptied its coffers: FX reserves plummeted by $50 billion, while $200 billion in forward-dollar liabilities loom as a ticking time bomb.

【Answer 2】 India’s foreign exchange reserves have declined by $50 billion since early September—a pace far exceeding market expectations—and directly reflects the intensity of the RBI’s dollar sales in the spot market. Although headline reserve levels still stand at $734.6 billion, this figure masks far more severe structural pressures. The spot-market drawdown is merely the tip of the iceberg. The RBI’s negative dollar forward book has reached $200 billion, meaning the central bank has assumed massive future dollar delivery obligations in the forward market. Meanwhile, the banking system faces an additional ~$35 billion in forward dollar exposure—arising primarily from interest-payment obligations on non-resident Indian (NRI) dollar deposits. This estimate comes from Ananth Narayan, an analyst at the Observatory Group and former banker and securities regulator. This structural accumulation of dollar liabilities means that every spot-market intervention intensifies future forward settlement pressure. The current NRI dollar deposit mobilization drive—totaling $133 billion—is over five times larger than the $26 billion raised in 2013. Yet unlike in 2013, this surge in inflows has failed to stabilize reserves; instead, reserves continue to decline. While banks have transferred exchange-rate risk to the RBI, they must still independently source dollars to pay interest to NRI depositors—generating additional forward dollar demand. Should market pessimism persist, the rollover costs of these forward positions will surge sharply, further eroding the RBI’s policy space. Administrative measures have been comprehensively escalated—but they treat symptoms, not root causes. According to WallStreetCN, since October 12, 2023, the RBI has opened a dedicated window through designated banks to provide foreign exchange directly to India’s three state-owned refiners—Indian Oil Corporation (IOC), Hindustan Petroleum Corporation Limited (HPCL), and Bharat Petroleum Corporation Limited (BPCL)—bypassing the spot market entirely. Goldman Sachs emerging markets strategists Rishi Radia and Lu Sun note in their report that these three refiners’ annual dollar requirements total approximately $120 billion—and the largest daily buyers of dollars in the spot market, which previously pressured the rupee downward, have now vanished from that market. Yet Goldman Sachs bluntly states: “The underlying real demand for dollars remains unchanged—it has merely shifted to being met by the RBI’s foreign exchange reserves.” While immediate pressure on the rupee in the spot market has eased, the cost is accelerated reserve depletion: so long as oil prices remain near $100 per barrel, each imported barrel of crude oil will directly consume foreign exchange reserves. At the same time, the RBI has revived a suite of derivative controls first briefly deployed during acute stress in April: banning the rebooking of canceled rupee-dollar derivative contracts; slashing the maximum permissible derivative position that can be established without prior proof of underlying exposure—from $100 million down to $5 million, a 95% reduction; and imposing a 20% cash margin requirement on hedging contracts involving dollar purchases exceeding $2 million. Goldman Sachs characterizes the latter measure as a “de facto increase in the cost of dollar-hedging.” Notably, these controls contain a clear loophole: offshore independent banks—not authorized by the RBI as domestic trading counterparties—are not directly bound by these rules. Goldman Sachs expects “some hedging demand may therefore shift to the NDF (non-deliverable forward) market,” and tightening in the onshore market may accelerate the migration of hedging activity to offshore venues.

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