India’s Forex Reserves

In news: Recently, Foreign Exchange Reserves of India surpassed Russia’s FERs to become fourth biggest and RBI continues to hoard dollars to cushion the economy against any sudden outflows.

Key updates

• India surpassed Russia as Russian holdings declined at a faster rate in recent weeks. But the FERs for both India & Russia have mostly flattened out this year after months of rapid increase
• Countries with largest reserves: China has the largest reserves, followed by Japan and Switzerland on the International Monetary Fund table.
• According to RBI, Country’s reserves, enough to cover roughly 18 months of imports, have been bolstered by a rare current-account surplus, rising inflows into the local stock market and FDI.

Key facts by RBi

• In the previous week ended February 26, the reserves rose by USD 689 million to USD 584.554 billion. It had touched a record high of USD 590.185 billion in the week ended January 29, 2021.
• In the reporting week ended March 5, the fall in reserves was due to a decline in the Foreign Currency Assets (FCA).
• The FCA dipped by USD 3.002 billion to USD 539.613 billion, the Reserve Bank of India’s (RBI) weekly data showed.
• Expressed in dollar terms, FCA includes the effect of appreciation or depreciation of non-US units like the euro, pound and yen held in the foreign exchange reserves.

Significance: 

As per the market analysts, a strong reserves position gives foreign investors and credit rating companies added comfort that the government can meet its debt obligations despite a deteriorating fiscal outlook and the economy heading for its first full-year contraction in more than four decades.