In The Gloomy Economic Situation, India’s Forex Reserves Reached All-Time High

by Shatakshi Gupta

The country’s foreign exchange reserves have reached its peak.  According to the data released by the Reserve Bank of India, the foreign exchange ( Forex) reserves have increased by $3.883 billion and reached $541.431 billion, which is the highest level ever.  Earlier, in the week ended August 21, the foreign exchange reserves had increased by $ 2.296 billion to $ 537.548 billion.

Why Forex is increasing?

 The interesting thing is that when there is a huge decline of -23.9% in the country’s GDP growth, then foreign portfolio investors (FPIs) invested heavily in India’s capital market (stock and debt market).  According to the National Securities Depository Limited (NSDL), foreign investors bought $ 6.662 billion in the country’s stock and debt markets in August 2020.  This is the largest FPI investment in India in the last 41 months.

 This week, this increase in foreign exchange reserves has been particularly due to the surge in foreign currency assets (FCA), which form a major part of the currency reserves.

Also read: India Faces 23.9% Contraction In GDP, Worst In Past 40 Years

 According to RBI data, FCA has increased by $ 3.92 billion to $ 498.09 billion during this period.  Foreign currency assets in dollar terms include the effect of declining or increasing non-US units such as the euro, pound, and yen. 

 According to RBI data for the week ending August 28, gold reserves have fallen by $ 6.4 million, now it has come down to $ 37.2 billion.

What does this mean? 

Also read: On The Recovery Of Economy RBI Governor Shaktikanta Das Said, ‘RBI is still left with ammunition’

The rising forex reserves give comfort to the RBI and the government in managing external and internal financial matters of India, especially when there is a negative economic growth is registered. This reserve serves as a cushion in the event of a crisis on the economic front. It is enough to cover the import bill of India for a year. The rising reserves have also helped the rupee to strengthen against the dollar.