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India is world’s fifth largest forex reserves holder

forex reserves

With forex reserves at $608.99B, India has emerged as the fifth-largest forex reserves holder in the world after China, Japan, Switzerland and Russia

India’s Minister of State for Finance Pankaj Chaudhary has announced that India has emerged as the fifth-largest forex reserves holder in the world after China, Japan, Switzerland and Russia with forex reserves at $608.99B as of June 25, 2021. He said this in a written reply to a question in the Lok Sabha (the lower house of India’s parliament).

He said that India’s forex reserves position is comfortable in terms of import cover of more than 18 months and provides a cushion against unforeseen external shocks. The government and RBI (Reserve Bank of India) are closely monitoring the emerging external position calibrating policies or regulations to support robust macroeconomic growth.

Giving more details, the Minister said that RBI takes regular steps for diversification of forex reserves by scaling up operations in forex swap and repo markets, acquisition of gold and exploring new markets/products, while adhering to safety and liquidity standards.

The RBI’s intervention in the forex market to smooth out exchange rate volatility, valuation changes due to movement of the US dollar against other international currencies in the reserve basket, movement in gold prices, interest earnings from the deployment of foreign currency assets, and inflow of aid receipts are the main causes of variation in India’s forex reserves.

The minister stated that a current account deficit, accompanied by increasing foreign exchange reserves, reflects a surplus on the balance of payments i.e., the magnitude of the net capital inflows exceeds the volume of the current account deficit. In 2020-21, India’s balance of payments recorded a surplus in both current account and capital account which contributed to the increase in foreign exchange reserves during the year.

He said that besides exports and imports of goods and services, the overall stability of the external sector depends on other components of the balance of payments including remittances (transfers), income in the current account, the size of net capital flows and external debt. India is comfortable in most of these external sector vulnerability indicators.

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