• As per the biannual report of RBI on exchange management, the adequacy of foreign exchange reserves, measured by import cover, declined to 10.8 months in December 2017, from 11.3 months at the end of March 2017.

• India’s foreign currency assets fell by around $19 billion since April this year in the wake of capital outflows and intervention by the Reserve Bank of India to arrest the decline in the rupee’s value against the dollar.
• Total foreign exchange reserves were at $409 billion in December 2017 as compared with $370 billion as on March 2017.

• Typically, 10 months of import cover is seen as stable for the currency.

• Import cover is an indicator for the currency’s stability.
• The ratio of short­ term debt to foreign exchange reserves, which was 23.8% at end March 2017, remained at the same level at end­ December 2017. 
• The ratio of volatile capital flows to foreign exchange reserves declined from 88.1% at end­ March 2017 to 86.9% at end ­December 2017.

•  Foreign exchange reserves consist of any foreign currency held by a centralized monetary authority (RBI)

• Foreign exchange reserves are reserve assets held by a central bank in foreign currencies, used to back liabilities on their own issued currency as well as to influence monetary policy.

• The forex reserve is also kept as a cushion against any potential balanced of payment related crisis.

• India’s foreign exchange reserves comprises of:

(i) Foreign currency assets (FCA)

(ii) Gold,

(iii) Special Drawing Rights (SDRs) and

(iv) Reserve tranche position (RTP) in the International Monetary Fund.

• Import cover is a measure of the number of months of imports that can be covered with foreign exchange reserves available with the central bank of the country.
• It is an important indicator of the stability of a currency is import cover.
• Eight to ten months of import cover is essential for the stability of a currency.

The Hindu, Indian Economy.