A very encouraging and historic news has emerged for the country on the front of Indian economy and financial stability. According to the latest data released by the Reserve Bank of India (RBI), the country's total foreign exchange reserves have reached an all-time high of $ 729.328 billion, with a huge increase of $ 12.422 billion in a week. The previous record was $728.5 billion. This historic rise in India's foreign exchange reserves amid global geopolitical tensions, volatile crude oil prices and dollar fluctuations in the international currency market testifies to the country's strong economic fundamentals and its immense ability to withstand external financial shocks.
According to detailed data released by RBI, both Foreign Currency Assets (FCA) and Gold Reserves have played an important role in this record-breaking surge:
-
Foreign Currency Assets (FCA): Foreign currency assets, considered the largest part of foreign exchange reserves, increased by $ 9.482 billion in a single week to reach the level of $ 591.333 billion. This includes changes in the value of major non-US currencies like the euro, pound and yen apart from the dollar.
-
Gold Reserve: A tremendous increase has also been recorded in the value of gold kept with the central bank. India's gold reserves increased by $2.801 billion to $114.218 billion during the reporting week. Rising global gold prices and strategic purchases have taken it to new highs.
-
Special Drawing Rights (SDR): There was an increase of $ 112 million in the special drawing rights held by the International Monetary Fund (IMF) and it stood at $ 18.852 billion.
-
India's reserve position in IMF: India's reserve position with the IMF also increased by $26 million to $4.925 billion.
Financial analysts and market experts say that this unexpected increase in foreign exchange reserves is the result of special steps taken by the Reserve Bank in the last months. RBI has created Special Concessional Swap Window and Foreign Currency Non-Resident Account i.e. FCNR-B for Non-Resident Indians (NRIs) to attract foreign exchange inflows. [FCNR(B)] Deposit scheme was started. Through this special arrangement, foreign capital inflow of more than $72 billion was recorded in the country's banking system. The continued confidence of foreign investors in Indian stock and bond markets and record investments by NRIs have unprecedentedly enriched the country's exchequer.
This huge foreign exchange reserve of 729.33 billion dollars will act as a strong external shock absorber for India's import bill and domestic currency (rupee). India imports more than 85% of its energy needs. If there is an unexpected rise in international crude oil prices, India has enough dollars to pay for imports for more than 11 to 12 months. Additionally, whenever the rupee comes under pressure due to the strengthening of the dollar in the international market, the RBI can easily control the fall and excessive volatility of the rupee by selling dollars in the open market.
India today stands firmly in the list of top countries in the world in terms of foreign exchange reserves. India is among the largest holders of foreign exchange reserves in the world after China, Japan and Switzerland. Such large reserves are a positive sign for international credit rating agencies (such as S&P, Moody's and Fitch). This strengthens the possibilities of improvement in India's sovereign rating, which provides great convenience to Indian companies in raising loans and business capital from foreign markets at low interest rates.
Economic experts believe that foreign exchange reserves reaching a record level is not just a statistical figure, but a clear indication of domestic manufacturing, export expansion and strong macro-economic stability. The inflow of foreign investment is expected to further increase due to the festive season, increase in domestic consumption and India's increasing participation in the global supply chain, due to which the country's treasury can set new milestones in the coming months.