What should be India's forex reserves?

Arvind Subramanian thinks that India should target $ 1 trillion so as to provide self-insurance to cushion against all possible outflows, including the external debts ran up by private sector. Accumulating this can be done only by running up current account surpluses, which in turn requires a competitive exchange rate. He writes,

"Maintaining a competitive exchange rate requires policy and structural reforms but it is rendered difficult, if not impossible, when there are large inflows of capital. Such inflows may have long-run benefits, but from a self-insurance perspective, they are a double whammy: they increase the vulnerability to crises but also make self-insurance against crises more difficult because competitive exchange rates are less easy to maintain. Self-insurance therefore requires a mercantilist slant to exchange rate policy and caution about capital account opening.

But self-insurance is not without costs even as insurance. This strategy will increase reliance on exports and foreign markets for sustaining growth. Export-to-GDP ratios will increase, but the flip side is that India's exports and growth will become more vulnerable to growth slowdowns in foreign markets. So, what a country gains from self-insurance on the swings (protection against financial contagion) it loses partly on the roundabouts (vulnerability to trade contagion). Policy-makers will have to trade-off these benefits and costs."