EY Urges India to Build Strategic Reserves Against Global Risks

Why India Needs Bigger Reserve Buffers Now

India must urgently strengthen its strategic reserves to protect against rising global uncertainties, according to a new Ernst & Young report. The consulting giant has called for accelerated accumulation of both foreign exchange reserves and commodity stockpiles as geopolitical tensions threaten to disrupt supply chains and destabilise markets.

While India's external position remains stable today, the EY analysis warns that mounting volatility in energy prices, trade flows, and capital movements could quickly erode that stability. The report positions reserve adequacy as critical infrastructure for macroeconomic resilience, not an optional buffer.

The Foreign Exchange Safety Net

India's economy may be largely domestic-driven, but it remains exposed to global commodity prices—especially crude oil and metals—and foreign investment flows. The EY report argues that deeper forex reserves would allow the Reserve Bank of India to intervene more effectively during currency volatility, stabilise the rupee, and maintain import cover without emergency borrowing.

The consultancy recommends maintaining reserves equivalent to 8–10 months of imports, a benchmark that offers meaningful protection during balance-of-payments stress. This reduces the need for hasty policy corrections that can disrupt domestic economic activity.

India's forex reserves have grown substantially in recent years, supported by strong exports and remittance inflows. Yet EY suggests current levels may prove insufficient during a severe external shock or prolonged geopolitical crisis. The RBI has been building buffers through forex market interventions, but the report calls for a more deliberate, forward-looking strategy.

Commodity Stockpiles: The Missing Link

Beyond forex reserves, EY emphasises building strategic commodity reserves—particularly energy and critical minerals. Global supply-chain disruptions have exposed India's dependence on stable access to essential inputs. A robust commodity stockpile strategy would cushion the economy against sudden price spikes or supply cuts.

This matters most for energy security. Even modest supply disruptions can cascade through the entire economy, triggering inflation and business uncertainty. Unlike China and the United States, which maintain substantial strategic petroleum reserves, India's public commodity stockpiles remain modest relative to consumption.

The report recommends a phased approach targeting oil, liquefied natural gas, and critical minerals such as lithium, cobalt, and rare earths. This would align with India's energy transition goals while securing industrial inputs for manufacturing growth.

How to Build Reserves Smartly

EY advocates closer coordination between the Ministry of Finance, the RBI, and sector regulators to accumulate reserves systematically and cost-effectively. Rather than ad-hoc accumulation, a structured approach with clear targets and funding mechanisms would maximise efficiency.

One option: channel a portion of government revenue surpluses into reserves during strong growth periods, building buffers in good times to deploy during stress. Alternatively, dedicated fiscal allocations for strategic commodity reserves—similar to food security mandates—could ensure consistent progress.

The report also recommends diversifying forex reserves beyond dollars to include other major currencies and gold. Gold reserves offer protection against inflation and currency instability, and India's position as a major gold consumer makes expansion strategically sound.

The Growth Case for Reserves

Reserve building need not constrain growth. By reducing macroeconomic uncertainty and lowering the risk premium on Indian assets, stronger reserves can actually support investment and consumption. Foreign and domestic investors deploy capital more confidently in economies perceived as resilient and well-prepared.

EY acknowledges the fiscal cost of holding commodities or foreign currency—storage, insurance, opportunity cost—but argues these are outweighed by benefits of reduced vulnerability and faster crisis recovery.

For policymakers, the message is clear: the global environment is increasingly unpredictable. India's sustained growth and rising geopolitical role make it more exposed to external pressure. Investing in reserves—both financial and physical—is an investment in economic sovereignty and the ability to pursue policies in India's national interest.

The report ultimately positions reserve building as essential infrastructure for growth, not a cost to it. As global tensions persist, the case for such action has never been stronger.

Based on reports from Google News — Indian Economy.