Mumbai: Veteran banker Uday Kotak cautioned that India's foreign exchange reserves remain strong but leave "very little room for complacency", as large foreign capital flows expose the economy to risks from global volatility.
Speaking at the ET Awards, Kotak highlighted that India has received approximately $1.5 trillion in foreign capital through foreign portfolio investment (FPI) and foreign direct investment (FDI). This influx creates vulnerability if investors pull out during periods of uncertainty, he warned.
India currently holds around $700 billion in reserves, including gold and Special Drawing Rights (SDR). While this is stronger than in previous decades, Kotak noted that it may not be sufficient to absorb large outflows. "Reserves are comfortable, but not something which we can take for granted," he said.
Addressing the impact of higher oil prices, Kotak stated that if crude oil sustains between $90 and $100 per barrel, India's current account deficit could widen from about 1% of GDP to 2.5%. This would require financing of $150 billion annually, posing additional challenges to the economy.
Kotak's remarks underscore the delicate balance India must maintain between attracting foreign capital and safeguarding against external shocks, as global economic conditions remain uncertain.
