. within its multilateral commitments, india has forcefully articulated its position which reflects the concerns of the developing countries. in tune with the worldwide spread of regional trading arrangements and our belief that such arrangements act as prelude to progressive multilateral trade liberalisation, india has entered into several preferential trade agreements. these reforms in the trade policy regime have unlocked entrepreneurial energies. india ’ s merchandise exports have been rising at a rate of over 20 per cent per annum, in us dollar terms, in recent years. as a result, the secular decline in india ’ s share in world exports from two per cent in 1950 to 0. 5 per cent in the 1980s has been halted. this share began rising in the 1990s and is currently at 0. 8 per cent. the export strategy envisages a doubling of india ’ s share in the world merchandise trade by 2008 - 09. services trade policy reforms undertaken since the 1990s have shed their traditional focus on merchandise trade and encompassed a wide range of tradable services, reflecting india ’ s competitive advantage in business services, technical and professional services. the exim policies of recent years have selected services for special focus. india accepted the obligations under article viii of the imf ’ s articles of agreement and instituted current account convertibility in 1994. besides, there has been a progressive liberalisation of the exchange control regime. foreign direct investment ( fdi ) has been permitted in a host of services in order to take advantage of modern technology, with some restrictions on financial services, taking into account the current stage of development and openness. further, increasing availability of speedier and cost - effective money transfer arrangements through the banking channels and post offices has resulted in significant increase in the use of formal channels for remittance transfers. exports of services have risen consistently by over 20 per cent per annum in recent years. within services exports, software and it - enabled services have been growing at an average rate of 46 per cent annually since the mid - 1990s. over the years, skill content of indian labour has been rising and the traditional markets of the middle east have given way to the us, europe and other industrialised countries. for the external sector, this natural advantage has translated into significant inflows in the form of remittances from indians working abroad. workers ’ remittances are nearly four per cent of india ’ s gdp now and have provided considerable and sustained support to india ’ s balance of payments. trade and current account a discussion on the recent trends

, in respect of their foreign exchange exposures and transactions are a dynamic component of management of capital account as well as financial supervision. reserve management the adequacy of foreign exchange reserves is a relevant consideration in the management of the capital account. first, adequacy has to be viewed not only in terms of trade needs but also other shortterm liabilities. second, it is not merely the long - term or short - term debt in terms of original maturity that is relevant for reserves, but the profile of external debt in terms of residual maturity. a traderelated debt which is in the nature of collateralised debt may be less severe on reserve requirements. third, any addition to portfolio flows may warrant comfort through some additions to reserves. in fact, there is merit in presuming that the flows are temporary till there is reason to judge them to be permanent. fourth, it is necessary to recognise that reserves provide cushion to manage real and external sector shocks like oil prices. fifth, there is usually an opportunity cost of maintaining foreign exchange reserves, but this must be weighed against the financial and non - financial costs associated with volatile and adverse exchange rate movements. finally, while the optimal level of reserves is difficult to quantify, attention to level of reserves as a means of self - insurance is essential. in the final analysis, the adequacy of reserves needs to be assessed in terms of a medium - term perspective taking into account the possible levels of the current account deficits, the composition of capital flows, the level of international confidence in the ability of the country ’ s payment position and pace and quality of growth. viewed from all these perspectives, the current level of reserves continues to be comfortable. the essence of portfolio management of reserves by the rbi is to ensure safety, liquidity and optimisation of returns. the reserve management strategies are periodically reviewed by the rbi in consultation with the government. in deploying reserves, attention is paid to the currency composition, duration and selection of instruments. while there is no set formula to meet all situations, the rbi applies sound portfolio management principles and risk management. exchange rate management a major success in external sector management has been the transition from an administered exchange rate regime to a more flexible, market - based system. under the new arrangements instituted in early 1993, the day - to - day movements in exchange rates are market determined. india ’ s current exchange rate policy focuses on management of volatility without a fixed target, while allowing