The above is an article from Indian Express. The following are | ECONOMY by VIVEK SINGH

The above is an article from Indian Express. The following are some relevant points.

1) Our Forex reserves has crossed $600 billion, with which we will be able to import our requirements of goods for the next 15 months (also called import cover) ... this is assuming that we do not get any new forex.

2) RBI is saying that $600 billion may not be sufficient as we should not judge it only by 'import cover' rather there other factors which cause external vulnerability and one important factor is "Net International Investment Position (NIIP)". [This term NIIP was discussed in Economic Survey 2019-20]

So, let us understand Net International Investment Position (NIIP)

Whatever the Govt. and other entities borrow from abroad acts as a debt/liability for our country.
And if we purchase shares of a company abroad then these shares are assets for us (our country) and liability for the other country/company. And hence all the FDI investments (it happens through shares) happening in India is a liability for the company in India and liability for the country also.

If my company has borrowed from abroad then the debt paper which the foreign bank will be holding, it is an asset for the foreign country/bank and liability for my company/country.

NIIP measures the difference between our nations (includes individual, companies, Govt.) stock of foreign assets and foreigner’s stock of our nation’s asset.
If the FDI inflow in our country is increasing then it is increasing liability on our company/country or in other way we can say that it is increasing the foreigner’s stock of our nation’s asset.

If our country has borrowed more from abroad or if FDI investment is more in our country then it is a burden for us and in future we will have to service this by paying interest/principal/dividend. And this payment/servicing of the liability/debt is in Foreign Currency.

So, if the NIIP position is deteriorating that means becoming negative [Our NIIP position is -12.9% of GDP, which means we own less foreign assets than foreigners owning our nation's assets], then we require more Forex reserves.

So, the $600 billion of forex may look sufficient in terms of import cover but its not at all enough if we look at our NIIP position.