Foreign exchange reserves of India

The Foreign exchange reserves of India are India's holdings of cash, bank deposits, bonds, and other financial assets denominated in currencies other than India's national currency, the Indian rupee. The reserves are managed by the Reserve Bank of India for the Indian government and the main component is foreign currency assets.

Foreign exchange reserves act as the first line of defense for India in case of economic slowdown, but acquisition of reserves has its own costs.[1] Foreign exchange reserves facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India.[2]

India's total foreign exchange (Forex) reserves stand at US$405.1434 billion with foreign exchange assets (FCA) component at US$380.0499 billion, gold reserves at US$21.1399 billion, SDRs (Special Drawing Rights with the IMF) of US$1.4796 billion and US$2.4740 billion reserve position in IMF in the week to July 20, 2018, as per Reserve Bank of India's (RBI) weekly statistical supplement published on July 27, 2018.[3] The Economic survey of India 2014-15 said India could target foreign exchange reserves of US$750 billion-US$1 trillion.[4]

As of September 2017, India's foreign exchange reserves are mainly composed of US dollar in the forms of US government bonds and institutional bonds.[5] with nearly 5% of forex reserves in gold. India is, coincidentally the world's largest gold consuming nation.[6] The FCAs also include investments in US Treasury bonds, bonds of other selected governments and deposits with foreign central and commercial banks. India is at 9th position (september 2018 ) in List of countries by foreign-exchange reserves , just below Republic of China (Taiwan) and Russia.[7][8]

Composition

Reserve Bank of India Act and the Foreign Exchange Management Act, 1999 set the legal provisions for governing the foreign exchange reserves. Reserve Bank of India accumulates foreign currency reserves by purchasing from authorized dealers in open market operations. Foreign exchange reserves of India act as a cushion against rupee volatility once global interest rates start rising.[9]

The Foreign exchange reserves of India consists of below four categories;[10]

  1. Foreign Currency Assets
  2. Gold
  3. Special Drawing Rights (SDRs)
  4. Reserve Tranche Position

Statistics

  • In 1960, forex reserve covered just 8.6 weeks of imports[11]
  • In 1980, India had foreign exchange reserves of over U$7 billion, more than double the level (U$2.55 billion) of what China had at that time.[7]
  • In 1990, forex reserve covered just 4.8 weeks of imports[12]
  • Foreign exchange reserves of India reached milestone of $100 billion mark only in 2004.
  • India was forced to sell dollars to the extent of close to U$35 billion in the spot markets in Financial Year 2009 due to 22% depreciation in rupee (against the dollar) in the same fiscal year 2009.
  • In 2009, India purchased 200 tonnes of gold from the International Monetary Fund, worth US$6.7bn (€4.57bn, £4.10bn).[13]

See also

References

  1. ↑ "Costs Involved In Increasing Forex Reserves: RBI".
  2. ↑ "RBI".
  3. ↑ "RBI Release: Weekly Report, foreign exchange reserves of India".
  4. ↑ "RBI Monetary Policy $1 trillion forex reserves: A pipe dream".
  5. ↑ Y V Reddy: India’s foreign exchange reserves – policy, status and issues – May 10, 2002
  6. ↑ "India's forex reserves lose shine as gold prices plummet".
  7. 1 2 "Surging forex reserves to help improve economic outlook".
  8. ↑ "Look How Rich India's Become Under New Prime Minister Modi".
  9. ↑ "India's forex reserves will cushion Rupee volatility: Rajan".
  10. ↑ "Foreign exchange reserves of india".
  11. ↑ Forex reserve history
  12. ↑ Forex reserve history
  13. ↑ "India flexes its foreign reserve muscles".

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