Q. Which of the following best describes the term ‘import cover’, sometimes seen in the news?

It is the ratio of value of imports to the Gross Domestic Product of a country
It is the total value of imports of a country in a year
It is the ratio between the value of exports and that of imports between two countries
It is the number of months of imports that could be paid for by a country’s international reserves

Answer: (d) It is the number of months of imports that could be paid for by a country’s international reserves

Import Cover meaning corresponds to measures the number of months of imports that can be covered with foreign exchange reserves available with the country’s central bank.
The import cover in India is an important indicator of the country’s external trade stability and its ability to meet its import obligations.
A higher import cover suggests a stronger position to manage potential fluctuations in imports or external shocks, while a lower import cover indicates a potential vulnerability in managing import requirements.
Since India is a net importer rather than a net exporter, the Forex reserve is responsible for influencing the import cover of the Indian Economy.
The main reasons which influence the Import cover of the Indian Economy are:
- Forex reserves
- Depreciating/ Appreciating the value of the Indian Rupee in comparison to the US Dollar.
- US Fed Rates
- Inflow or Outflow of Foreign Institutional Investments