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

Qiu Lin To stabilize the continuously falling rupee exchange rate, the Reserve Bank of India (RBI) has been aggressively selling U.S. dollars in the market recently. How fast is the foreign exchange reserve being depleted? In just over one month—from September to now—India’s foreign exchange reserves have already evaporated by $50 billion, leaving only $734.6 billion on the books. According to a report by WallStreetCN on October 17, the RBI is paying an increasingly heavy price to defend the rupee. The country’s foreign exchange reserves have shrunk by $50 billion since early September, and its massive negative $200 billion dollar forward position—combined with an additional ~$35 billion in forward dollar exposure across the banking system—is pushing this currency defense campaign 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 hard currency that unlocks global goods and commodities. Once the central bank’s reserves run dry, India will lack the dollars needed to purchase oil, fertilizers, and industrial raw materials. Gas stations could face supply disruptions; factories might halt production. The rupee would instantly depreciate, 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—drawing directly from the nation’s foreign exchange reserves. To prevent these refiners from competing for dollars in the open market—and thereby collapsing the exchange rate—the RBI began, as of October 12, using its own foreign exchange reserves to procure oil for them internationally. In effect, every barrel of imported oil is directly draining the RBI’s foreign exchange reserves. A recent Goldman Sachs report noted: “The underlying real demand for dollars hasn’t changed—it has merely shifted to being met by the Reserve Bank of India’s foreign exchange reserves.” While pressure on the rupee in the spot market has eased, the cost is accelerating reserve depletion: so long as oil prices remain near $100 per barrel, India’s oil imports will continue to consume foreign exchange reserves directly. Another major drain stems from foreign capital outflows. This year, the rupee has repeatedly hit new lows against the dollar, plunging to a record low closing level of 96.88 in early October—approaching the psychological 97 threshold. Currently, the yield spread between Indian and U.S. 10-year government bonds stands at only 200 basis points; foreign investors perceive diminishing returns, prompting their exit from India. Amid rising global risk-aversion sentiment—and lacking hot investment themes like AI—foreign investors have net sold $31 billion worth of Indian equities this year. With national coffers running critically low, Indian authorities have resorted to their ‘last-resort’ measure: appealing to the overseas Indian diaspora to ‘send money to save the country’.

The RBI’s rupee rescue operation empties its coffers: FX reserves plunge $50 billion; $200 billion in forward-dollar liabilities become a ticking time bomb.

The Reserve Bank of India (RBI) is paying an increasingly heavy price to defend the rupee. Its foreign exchange reserves have evaporated by $50 billion since early September, while its massive negative $200 billion dollar forward position—combined with an additional ~$35 billion in forward dollar exposure across the banking system—is pushing this currency defense campaign toward a sustainability tipping point. The RBI’s current intervention measures have escalated progressively: from mobilizing overseas Indians to borrow $133 billion within less than three months, to directly establishing a dedicated window that transfers the daily $250–400 million foreign exchange purchase needs of three state-owned oil companies—Indian Oil Corporation (IOC), Hindustan Petroleum (HPCL), and Bharat Petroleum (BPCL)—onto the RBI’s balance sheet; and further to reinstating derivatives controls and sharply curtailing speculative dollar purchases by market participants. As a result, the rupee has temporarily rebounded from its all-time lows to around 95—but the triple external pressures of high oil prices, rising inflation, and surging U.S. Treasury yields render the outlook for this rescue operation increasingly fragile. A deeper concern lies in the fact that the yield spread between Indian and U.S. 10-year government bonds has plummeted from 600 basis points in 2013 to roughly 200 basis points today—effectively eroding the traditional interest-rate buffer. With administrative interventions nearing their limits, markets are now debating an alternative path: lifting the entire yield curve to reestablish a favorable interest-rate differential—relying on price signals rather than administrative orders. Yet this route carries steep costs too, directly raising domestic borrowing costs and further weighing on an already strained economy. Foreign Exchange Reserves Depletion and Forward Liabilities: The Real Pressure Beneath the Iceberg India’s foreign exchange reserves have declined by $50 billion since early September—a pace far exceeding market expectations—and directly reflects the scale of the RBI’s spot-market dollar sales. Although headline reserve figures still stand at $734.6 billion, this number masks far more severe structural pressures. Spot-market depletion 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, due to interest-payment obligations on overseas Indian dollar deposits, the banking system faces an additional ~$35 billion in forward dollar exposure—an estimate provided by Ananth Narayan, analyst at the Observatory Group and former banker and securities regulator. This structural accumulation of dollar liabilities means each spot-market intervention intensifies future forward settlement pressure. The current overseas Indian dollar deposit mobilization totals $133 billion—more than five times the $26 billion raised in 2013. Yet unlike in 2013, this influx has failed to stabilize reserves; instead, reserves continue to decline. While banks have transferred exchange-rate risk to the RBI, they must still source dollars independently to pay interest to overseas depositors—generating additional forward-dollar demand. Should market pessimism persist, the rollover cost of forward positions will surge sharply, further eroding the RBI’s policy space. Administrative Measures Fully Escalated—Yet Only Address Symptoms, Not Root Causes As reported by WallStreetCN, since October 12, 2026, the Reserve Bank of India has opened a dedicated window, directly providing foreign exchange to India’s three state-owned refiners—IOC, HPCL, and BPCL—via designated banks, completely bypassing the spot market.

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