What are India's Forex Reserves
India's forex reserves are the foreign assets held or controlled by the country's central bank, the Reserve Bank of India (RBI). They are mainly composed of foreign currency assets, gold, special drawing rights (SDRs) and reserve tranche position (RTP) with the International Monetary Fund (IMF). India's forex reserves act as a cushion against rupee volatility and external shocks, and facilitate external trade and payment. They also promote orderly development and maintenance of the foreign exchange market in India.
As of May 12, 2023, India's forex reserves stood at $599.53 billion, their highest level since early June 2022. This was an increase of $3.55 billion from the previous week, when they were $595.98 billion. The rise in forex reserves was mainly due to an increase in foreign currency assets, which rose by $3.54 billion to $506.35 billion. Foreign currency assets are the largest component of India's forex reserves and consist of US dollar and other major currencies in the form of bonds, deposits and securities. The value of foreign currency assets changes with the movement of exchange rates and interest rates.
The other components of India's forex reserves also increased marginally in the week ended May 12. The gold reserves rose by $4 million to $43.712 billion, reflecting the change in the price of gold in the international market. The SDRs increased by $2 million to $18.43 billion, while the RTP with the IMF rose by $1 million to $5.226 billion.
India has been accumulating forex reserves over the years to meet its external obligations and to maintain a comfortable level of import cover. According to the RBI, India's forex reserves cover about 18 months of imports, which is well above the norm of three months. India's forex reserves have also exceeded its external debt, which was $558.5 billion as of December 2022. Is Olymp trade genuine?
India's forex reserves have grown significantly since 1991, when they were only $5.8 billion and barely enough to finance three weeks of imports. The balance of payments crisis in 1991 prompted India to undertake economic reforms and liberalize its foreign exchange regime. Since then, India has witnessed a surge in foreign capital inflows, especially in the form of foreign direct investment (FDI) and portfolio investment (FPI). India has also diversified its sources and composition of forex reserves over time, increasing its share of gold, SDRs and RTP.
India's forex reserves are expected to continue to rise in the coming months, as the RBI intervenes in the foreign exchange market to prevent excessive appreciation of the rupee and to build a buffer against potential shocks. India's forex reserves are also likely to benefit from a favorable external environment, as global growth recovers from the impact of the COVID-19 pandemic and commodity prices remain stable. India's forex reserves are an important indicator of its economic strength and resilience, and reflect its ability to meet its external obligations and withstand external shocks.