Foreign Exchange Reserve Management in India: An Analysis on Objectives and its Adequacy

India's Foreign Exchange Reserves have increased from US $9.220 billion (1991-92) to US $ 341.638 billion at the end of March 2015 as a result of measures introduced to liberalize the economy and the financial sector reforms in 1991. This research explores various definitions provided by researchers on the Reserve Adequacy and then attempts to find adequate level of Forex. for India . The management of excess Reserves built up for so many years is the biggest challenge for the country. Currently in India, RBI in consultation with the GOI manages the Foreign Exchange Reserves. Emphasizing on the objectives of Reserve management as liquidity and safety, this paper attempts to look at various options to utilize the excess reserves. In this paper, quantitative techniques have been used to measure the impact of various independent variables like Net Export, Foreign Direct Investment, Foreign Institutional Investment and Non Resident Deposits and their impacts on Foreign Exchange Reserves are interpreted. Thereafter, the paper looks at various practices of investing Reserves on income generating assets in emerging economies. Then, the paper recommends methods of appropriate management of reserves both for precautionary and investment purposes.