reserves as a percentage of the annual imports - say reserves to meet three months imports or four months imports. however, this approach would be inadequate when a large number of transactions and payment liabilities arise in areas other than import of commodities. thus, liabilities may arise either for discharging short - term debt obligations or servicing of medium - term debt, both interest and principal. the committee recommends that while determining the target level of reserve, due attention should be paid to the payment obligations in addition to the level of imports. the committee, recommends that the foreign exchange reserves targets be fixed in such a way that they are generally in a position to accommodate imports of three months. ( paragraph 6. 3 ) in the view of the committee, the factors that are to be taken into consideration in determining the desirable level of reserves are : the need to ensure a reasonable level of confidence in the international financial and trading communities about the capacity of the country to honour its obligations and maintain trade and financial flows ; the need to take care of the seasonal factors in any balance of payments transaction with reference to the possible uncertainties in the monsoon conditions of india ; the amount of foreign currency reserves required to counter speculative tendencies or anticipatory actions amongst players in the foreign exchange market ; and the capacity to maintain the reserves so that the cost of carrying liquidity is minimal. ” ( paragraph 6. 4 ) with the introduction of market determined exchange rate as mentioned in the rbi ’ s annual report, 1995 - 96 a change in the approach to reserve management was warranted and the emphasis on import cover had to be supplemented with the objective of smoothening out the volatility in the exchange rate, which has been reflective of the underlying market condition. against the backdrop of currency crises in east - asian countries, and in the light of country experiences of volatile cross - border capital flows, the reserve bank ’ s annual report 1997 - 98 reiterated the need to take into consideration a host of factors, but is noteworthy for bringing to the fore the shift in the pattern of leads and lags in payments / receipts during exchange market uncertainties and emphasized that besides the size of reserves, the quality of reserves also assume importance. highlighting this, the report stated that unencumbered reserve assets ( defined as reserve assets net of encumbrances such as forward commitments, lines of credit to domestic entities, guarantees and other contingent liabilities ) must be available at any point of time to the authorities for fulfilling various objectives assigned to

forward liabilities on reserves, etc., in the rbi bulletin with a time lag of one month. a 5 - country and a 36 - country trade based neer and reer is published in the rbi bulletin. the rbi has all along, been ahead of many developing and industrial country central banks, been publishing the size of its gross intervention ( purchase and sale ) per month and its net forward liability position. the daily reference rate of us dollar and euro as well as the middle rates for four major currencies, viz., us dollar, gbp, euro and japanese yen are also available in the rbi website. as a part of the special data dissemination standards, imf prescribed a data template for disclosure of the international reserves and foreign currency liquidity in respect of countries, which have subscribed to sdds. india ’ s approach to reserve management closely follows international standards and codes, especially with regard to transparency, disclosure, accountability and data dissemination of foreign reserves. india is among the 49 countries, which have adopted the sdds template for publication of detailed data on forex reserves. the data template provides some information on a number of parameters including currency composition, deployment of forex reserves and forward positions. these data are made available on monthly basis in the rbi website as well as the country section of the imf sdds site, from the month of october, 2001. issues it is proposed to consider five sets of issues covering policy matters ; adequacy ; costs and benefits ; management aspects ; and dissemination of information. policy matters first, a critical issue is whether all the external assets are readily available for use. the management of foreign currency assets in india ensures such availability though in respect of a large part of gold which is a small part of official reserves, the quality is not in a form that is readily accepted in international financial markets. there is no likelihood of use of gold in reserves in the foreseeable future. nevertheless, india has devised mechanisms by which a part of the gold holdings of rbi could be converted into usable foreign currency. an incidental issue relates to the policy on enhancement or otherwise of gold component in the foreign exchange reserves and the way it is managed. the proportion of gold in our reserves is coming down in view of accretion to foreign currency reserves and the policy in regard to both holdings and management has been passive. secondly, an issue common to many central banks is the advantage in clearly spelling out policy objectives in regard to forex