BPSC 69th CCE Prelims General Studies · Question 111 of 144

Correct — D, All of the above. The Reserve Bank does not leave this to interpretation: Table 2 of its Weekly Statistical Supplement is headed “Foreign Exchange Reserves” and has exactly four sub-lines under the total. Take the issue dated 29 September 2023 — the week this paper was written — reporting the position as on 22 September 2023: Total Reserves US$ 590,702 million, made up of 1.1 Foreign Currency Assets US$ 523,363 million, 1.2 Gold US$ 44,307 million, 1.3 SDRs US$ 18,012 million and 1.4 Reserve Position in the IMF US$ 5,019 million. Add the four and you get US$ 590,701 million, the one-million gap being the rounding the table itself flags. That arithmetic is the proof: the four items are not merely included in the reserves, they exhaust them, so every one of the stem's four entries belongs and nothing has been left out. The same taxonomy is stated in words by the Government of India in paragraph 3.63 of the Economic Survey 2024-25 — “India's foreign exchange reserves comprise foreign currency assets (FCA), gold, special drawing rights (SDRs) and reserve tranche position (RTP) in the IMF.” One naming point is worth fixing now: the RBI's table heads its fourth line “Reserve Position in the IMF”, while the stem calls it the “Reserve Tranche Position”. They are the same thing — the part of India's IMF quota subscribed in reserve assets, which India may draw on demand and without conditionality.

• (a)Only 1 and 2 — Keeps Foreign Currency Assets and gold and throws out both IMF-related lines. It is the most seductive wrong option arithmetically, because FCA and gold together were US$ 567,670 million of a US$ 590,702 million total on 22 September 2023, or 96.1 per cent — but the SDR and reserve-position lines it discards were still US$ 23,031 million of real, reported reserve assets.
• (b)Only 2, 3 and 4 — Drops Foreign Currency Assets, which is the single largest line by an enormous margin — US$ 523,363 million on 22 September 2023, 88.6 per cent of all reserves. Any option that excludes FCA can be discarded on sight; it would leave India's reserves as gold plus two IMF entries worth barely a ninth of the real figure.
• (c)Only 1, 2 and 3 — The trap the question is actually built on. It gets the three components every textbook lists — foreign currency assets, gold and SDRs — and discards only the Reserve Tranche Position, the smallest and least familiar line at US$ 5,019 million or 0.85 per cent of reserves. Small is not the same as absent: the RBI reports it as line 1.4 of the reserves table, and it counts.

Foreign exchange reserves are the external assets a central bank holds and can deploy at short notice — to settle international payments, to steady the exchange rate, and to reassure lenders that the country can meet its obligations. India's are held and managed by the Reserve Bank and published every Friday in the Weekly Statistical Supplement, which splits them into four heads. Foreign Currency Assets are securities and deposits denominated in foreign currency, chiefly US Treasuries and deposits with other central banks and the Bank for International Settlements, and are valued in dollars, so a stronger euro or yen lifts the dollar value of the reserves without a single fresh inflow. Gold is a reserve asset in its own right. SDRs are the IMF's own reserve asset, a claim on a basket of the US dollar, the euro, the Chinese renminbi, the Japanese yen and pound sterling. The Reserve Tranche Position is that slice of India's IMF quota subscribed in reserve assets rather than rupees, which India can draw back at will and without conditions — which is exactly why it counts as a reserve and an IMF loan does not.

This is a definitional question with a single discriminating item, and the item is number 4. Almost every candidate will accept foreign currency assets, gold and SDRs; the whole question turns on whether you know the Reserve Tranche Position is a reserve asset and not a borrowing. The test that settles it is the drawing right: the reserve tranche is India's own money already paid into the IMF in hard currency, redeemable on demand and unconditional, so it is an asset India owns; an IMF credit-tranche drawing, by contrast, comes with a programme and conditionality and is a liability, which is why it never enters the reserves. The second useful check is arithmetic rather than memory: the RBI's own table makes lines 1.1 to 1.4 sum to line 1, so a four-item list that reproduces the table exactly cannot be a partial list, and the only option that keeps all four is (d). Do not be thrown by the label — the stem says “Reserve Tranche Position”, the RBI's table says “Reserve Position in the IMF”, and older UPSC papers say “Gold Tranche”; all three name the same line.

• RBI Weekly Statistical Supplement, 29 September 2023, Table 2, position as on 22 September 2023: Total Reserves US$ 590,702 million — Foreign Currency Assets US$ 523,363 mn (88.6%), Gold US$ 44,307 mn (7.5%), SDRs US$ 18,012 mn (3.0%), Reserve Position in the IMF US$ 5,019 mn (0.85%).
• The RBI's footnote to the same table records that Foreign Currency Assets exclude the Bank's SDR holdings “as they are included under the SDR holdings”, along with investment in bonds issued by IIFC (UK) and amounts lent under the SAARC currency swap arrangements — so the four heads do not overlap and nothing is double counted.
• Economic Survey 2024-25, paragraph 3.63: “India's foreign exchange reserves comprise foreign currency assets (FCA), gold, special drawing rights (SDRs) and reserve tranche position (RTP) in the IMF.”
• The SDR is not a currency but a claim on freely usable currencies, valued off a five-currency basket — US dollar, euro, Chinese renminbi, Japanese yen and pound sterling. India's holding jumped after the IMF's 2021 general allocation, of which India's share was about US$ 17.9 billion, received in Q2 of FY22 (Economic Survey 2022-23, Chapter 11).
• Scale and adequacy at the time of this exam, from Economic Survey 2022-23, Chapter 11: reserves were US$ 532.7 billion at end-September 2022 covering 8.8 months of imports, and US$ 562.7 billion at end-December 2022 covering 9.3 months; India was the world's sixth largest holder of reserves as of end-November 2022 on IMF-compiled data.
• Reserves move on valuation as well as on flows: in H1 FY23 India lost US$ 25.8 billion of reserves on a balance-of-payments basis but US$ 74.6 billion in nominal terms, the difference being US$ 48.9 billion of valuation loss as the dollar strengthened against the other reserve currencies.

• Dropping the Reserve Tranche Position because it is small and unfamiliar. At US$ 5,019 million it was under one per cent of reserves in September 2023, but it is line 1.4 of the RBI's own reserves table.
• Treating anything received from the IMF as a loan. The reserve tranche is India's own subscription paid in reserve assets and drawable unconditionally; a credit-tranche drawing carries conditionality and is a liability, and never enters reserves.
• Assuming Foreign Currency Assets is a residual that swallows the SDR holdings. The RBI's footnote expressly excludes SDRs from FCA, so the two lines are distinct.
• Reading a fall in reserves as an outflow. A large part of the FY23 decline was valuation loss on non-dollar assets, not money leaving the country.

BPSC asks this as a four-item inclusion list where the answer is almost always “All of the above”, because the components genuinely are four and the Commission's interest is whether you can name them. UPSC has asked the identical fact twice in different disguises — once as “which group of items is included in India's foreign-exchange reserves”, and once by isolating the hardest component and asking what a Reserve Tranche actually is. Learn the four heads with their approximate shares and you have both formats covered.

• practice — not a real PYQ

  In the Reserve Bank of India's Weekly Statistical Supplement, which component accounts for the largest share of India's foreign exchange reserves?

  • (a)Foreign Currency Assets
  • (b)Gold
  • (c)Special Drawing Rights
  • (d)Reserve Position in the IMF

  Answer(a) Foreign Currency Assets — US$ 523,363 million of a US$ 590,702 million total as on 22 September 2023, about 88.6 per cent.

• practice — not a real PYQ

  The 'Reserve Tranche Position' counted in India's foreign exchange reserves refers to:

  • (a)The part of India's IMF quota subscribed in reserve assets, which India can draw on demand without conditionality
  • (b)A concessional lending window of the World Bank available to India
  • (c)The Reserve Bank's gold held in custody with the Bank of England
  • (d)India's outstanding borrowing from the International Monetary Fund

  Answer(a) The part of India's IMF quota subscribed in reserve assets, which India can draw on demand without conditionality — the RBI reports it as 'Reserve Position in the IMF'; borrowing from the IMF is a liability and is not counted in reserves.