<div>There are costs involved in increasing the country's foreign exchange reserves as the interest rate earned on such foreign exchange is low, deputy governor of the Indian central bank, H.R. Khan, said on Monday.</div><div> </div><div>"Foreign exchange reserves act as the first line of defence but acquisition of reserves has its own costs," Khan said in a speech to students at a management school in Pune.</div><div> </div><div>India's foreign exchange reserves rose to a record high of $333.17 billion as on Feb. 13, compared with $330.21 billion a week earlier, data from the Reserve Bank of India showed on Friday.</div><div> </div><div>In the previous week, the reserves had increased by $2.33 billion to $330.21 billion.</div><div> </div><div>The latest accretion to the reserves can help India cover its import bill for almost 10 months now, according to analysts.</div><div> </div><div>The foreign currency assets (FCAs), a major constituent of overall reserves, increased by $2.3 billion to $307.26 billion in the reporting week.</div><div> </div><div>The gold reserves remained unchanged at $20.18 billion, reflecting a tepid movement in prices of the yellow metal.</div><div> </div><div><strong>Boosting Balance Sheet</strong></div><div>A fall in global oil prices provides India with the opportunity to strengthen its balance sheet, a deputy governor of the RBI said on Monday, alluding to the need to use savings to invest, build reserves and cut subsidies.</div><div> </div><div>India imports nearly two-thirds of its oil requirements and a lower oil import bill is likely to help slash the country's current account deficit, as well as help ease inflation.</div><div> </div><div>The government's annual budget, due to be presented on Saturday, is widely expected to include cuts to subsidies, but not by as much as some investors had hoped for.</div><div> </div><div>"The oil price going down is an opportunity which should not be wasted and we should be bolstering our balance sheets," Khan said.</div><div> </div><div>India's fuel subsidy comprises about a quarter of the total subsidy amount of nearly 2.6 trillion rupees ($41.81 billion) and the fall in oil prices provided the government room to impose an excise tax which is expected to earn an additional of around 200 billion rupees.</div><div> </div><div>Most analysts expect oil prices to stay within $70 a barrel, which will enable the government to save on its fuel subsidy as well as mop up more revenue through excise tax.</div><div> </div><div>India has also strengthened its foreign exchange reserves to record highs, preparing for possible shocks including any adverse impact from an increase in U.S. interest rates.</div><div> </div><div>"The big risk as all of us know is of U.S. (Federal Reserve) action -- the scope, the speed and the size of the rate hike," Khan said on Monday.</div><div> </div><div>(Agencies)</div><div> </div>
