India has only 13% of forex reserves in US treasuries

India may not be as vulnerable as China, Japan, Hong Kong or Brazil to losses on its forex portfolio from a spike in US interest rates.

Its investments in US government debt, at $41 billion in May (Source: US Treasury Department) account for only 13 per cent of its foreign exchange reserves of $310 billion on that date.

Putting all your eggs in one basket or even many of them, is never a good idea. Countries that have invested a big portion of their foreign exchange reserves in US government debt are now realising this, as S&P pegged down credit ratings for US debt.

These forex reserves, used mainly for funding a country's imports, may now face a depreciation as US interest rates rise in response to its lower credit rating. China and Japan, the largest investors in US treasury, had $1,159 billion and $912 billion worth of holdings respectively.

That implies that 36 per cent of the reported reserve assets of China and 86 per cent for Japan were parked in US government debt. Other large forex holders such as Brazil, Taiwan, Hong Kong and Switzerland also had a high proportion of their reserves in US treasuries.

According to the US treasury data, India is placed 16th on a list of countries ranked by their holdings in US treasury notes, bills and bonds.

Gold, the saviour

Apart from restricting its exposures to US treasuries, India has also managed to protect the value of its forex reserves through its timely bet on gold in October 2009.

Gold, 557 tonnes valued at $25 billion, accounts for 8 per cent of India's current forex reserves. Gold prices have gone up by as much as 59 per cent in dollar terms from the time RBI invested in it.

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