At $608.99 billion, India emerges as 5th largest forex reserves holder in the world

With $608.99 billion in foreign exchange reserves as of June 25, 2021, India has surpassed China, Japan, Switzerland, and Russia to become the world's fifth-largest foreign exchange reserve holder. Pankaj Chaudhary, Minister of State for Finance, mentioned this in a written response to a question in the Lok Sabha today. Chaudhary said that the government and the Reserve Bank of India are actively monitoring the country's evolving external position and fine-tuning policies and regulations to ensure strong macroeconomic growth. India's balance of payments surplused in both the current and capital accounts in 2020-21, he said, contributing to a gain in foreign exchange reserves during the year.

India emerges as 5th largest forex reserves holder

According to the Minister, India's foreign exchange reserves are sufficient to cover imports for more than 18 months and provide a buffer against unforeseen external shocks. The government and the RBI are keeping a close eye on the evolving external situation and adjusting policies and regulations to sustain strong macroeconomic development.

The Minister went on to say that the RBI takes regular steps to diversify its currency reserves by increasing operations in the Forex swap and repo markets, purchasing gold, and exploring new markets/products, all while following to safety and liquidity criteria.

Foreign exchange reserves holder

The RBI's intervention in the foreign exchange 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.

A current account deficit accompanied by rising foreign exchange reserves, according to the Minister, shows a balance of payments surplus, i.e., the magnitude of net capital inflows exceeds the volume of the current account deficit. The current account and capital account surpluses in India's balance of payments in 2020-21 contributed to a gain in foreign exchange reserves during the year.

Aside from goods and services exports and imports, the external sector's overall stability is determined by other components of the balance of payments, such as remittances (transfers), current account income, the magnitude of net capital flows, and foreign debt. According to the Minister, India is safe in the majority of these external sector vulnerability indicators.

Picture Credit:  ANI