The humiliation of that episode is still fresh in the national memory and goes a long way toward explaining why India is comfortable increasing its stockpile of reserves.

From just $975 million on July 12, 1991, they hit a record $142 billion last month -- the sixth-largest holdings in the world after Japan, China, Taiwan, South Korea and the euro zone.

Vijay Kelkar, a former senior finance ministry official, says the trauma of the 1991 crisis, triggered by the drying up of capital flows and withdrawals by non-resident Indians, was so great that he does not view today's reserves as excessive.

"There's a recognition that we can't depend on the rest of the world. If India's in trouble, we'll have to sort it out ourselves. If it happened once, it can happen again.

"So there's a lot of precautionary levels of reserves out there for the very simple reason that there's no faith in the international financial system if push comes to shove," Kelkar told Reuters.

In 1991, India had to turn to the International Monetary Fund for a bailout and devalued the rupee that July by 18 per cent.

"The memory of going around with a begging bowl is very much in our mind," a senior Indian monetary official said.

Now, with foreign capital pouring in, the Reserve Bank of India finds itself fighting rupee strength to protect exports.

The central bank has no formal target for the rupee but traders say it has kept the currency pinned down since it hit a five-year peak of 43.30 per dollar in early February.

Foreign reserves shot up an unprecedented $10.5 billion in the four weeks to March 11, signalling to analysts the central bank's resolve to rein in the rupee. The rupee was trading around 43.80 per dollar on Tuesday.

"This kind of process does not come with an expiry date," said Siddharth Mathur, a strategist at JP Morgan in Mumbai.

MEMORIES OF VULNERABILITY

Officials remain wary in case the money that has been pouring into India flows out again just as quickly.

The vulnerability of Indian markets to sudden shifts in sentiment was underlined last May, when the Bombay Stock Exchange's main index slumped 16 per cent in one day on a change in government after an unexpected election result.

The selloff was triggered by news the Congress-led coalition would depend on the support of left-wing parties opposed to market-friendly reforms such as privatisation.

Share prices quickly made up lost ground as foreign investors, who dumped $738 million worth of shares last May, ended up buying a record net $8.5 billion for all of 2004. And so far this year they have pumped in another $4 billion.

Still, the U.S. Federal Reserve's tightening bias has revived worries that higher-yielding emerging markets such as India might fall out of favour.

"We don't want to get into a mess and then have to ask people to bail us out," said Saumitra Chaudhuri, economic adviser to ICRA Ltd., an Indian rating agency.

"We learned a great lesson, and the lesson is: as long as you're OK, people want to conduct business with you. But if you slip up and make a bad mistake, you're going to pay the price for it," said Chaudhuri, a member of Prime Minister Manmohan Singh's economic advisory panel.

Against this background, the costs entailed in accumulating reserves for a rainy day have aroused little controversy.

One dissenting voice is that of Ardhendu Bhushan Bardhan, general secretary of the Communist Party of India (CPI). He told Reuters the reserves were a burden on India and said a portion of that should be used to finance infrastructure and development.

In fact, this was the original motive behind a $2 billion special purpose vehicle (SPV) to finance infrastructure projects announced last month by Finance Minister P Chidambaram.

But a proposal to fund the SPV with foreign exchange reserves ran into opposition from the central bank, which said it would be tantamount to printing money.

Instead, under revised plans, the SPV is likely to raise long-term funds from the domestic capital markets and buy foreign exchange as and when it needs to for import-intensive projects.

Even under this plan, India's reserves are a comfort because the government knows it can counter any pressure on the balance of payments that SPV-fuelled domestic demand might generate, said Ashok Lahiri, Chidambaram's chief economic adviser.

"I think we are in a comfortable position. Unlike the 50s, 60s, 70s, 80s, it's a new India," Lahiri told Reuters.

"We don't lose our sleep every night thinking about balance-of-payments vulnerability," he said.