MUMBAI: India’s foreign exchange reserves crossed the $700 billion mark for the first time, following a $12.6-billion surge during the week-ended Sept 27, making it the fourth country after China, Japan, and Switzerland to reach the milestone. The weekly surge was the fifth-highest ever. Forex reserves were estimated at $704.8 billion, according to data released by RBI on Friday.
The increase was attributed to a rise in the valuation of foreign currency assets by $10 billion and a $2 billion addition to gold reserves. The accretion in the week ended Sept 27 was the fifth highest. The highest weekly accretion was during the week-ended Aug 2021 when reserves rose $16.6 billion due to large inflows. Forex reserves have increased by $58.4 billion since March 2024, while the year-on-year increase is $117.9 billion, representing an improvement in the balance of payments position.
$298 billion of $705 billion forex reserves collected in Das’s 70 months as governor
Although India has a current account deficit in most quarters, the deficit is offset by capital flows and remittances from Indians living overseas, resulting in a balance of payments surplus.
Indian policymakers always draw comfort from high reserves having not forgotten the lesson during the balance of payments crisis of the early 1990s, which led to the reforms in 1991.
“India’s foreign reserves have increased at the fastest monthly run rate under RBI governor Shaktikanta Das ever recorded, at $4.2 billion a month, over an extended period of 70 months, with almost $298 billion collected since he took charge. This eclipses the past record of $3.3 billion under governor Y V Reddy. During his five-year term, RBI accrued more than $200 billion. The reserves are now almost double the reserve adequacy that the IMF observed in 2023, at $351 billion,” said Bank of America in a research note.
Foreign currency assets, which are largely bonds issued by govts, are the largest component of reserves and stand at $616.1 billion. These assets have risen by $45.2 billion since March 2024. Over the past year, foreign currency assets have increased by $95.9 billion. Gold reserves also contributed positively to the overall reserves, currently valued at $65.8 billion. They have seen a weekly increase of $2.2 billion and a total rise of $13.1 billion since March 2024.