According to Reserve Bank of India (RBI), India’s foreign exchange (Forex) reserves have crossed $400 billion mark for the first time. The increase was due sharp rise in foreign currency assets.
India is now at sixth position in forex reserves ranking behind China (3,053 billion reserves), Japan ($1,188 billion), Switzerland ($743 billion), Saudi Arabia ($489 billion) and Taiwan ($441 billion).
The Foreign exchange reserves act as buffer to be used in challenging times. The components of India’s FOREX Reserves include: Foreign currency assets (FCAs), Gold, Special Drawing Rights (SDRs) and RBI’s Reserve position with International Monetary Fund (IMF). FCAs constitute largest component of the Forex Reserves.
According to RBI, foreign currency assets were $376.20 billion, gold reserves at $20.69 billion, SDRs of $ 1.52 billion and $2.30 billion reserves in IMF.
The main reasons for rise in Forex Reserves are sharp increase in foreign currency assets, mainly huge inflows through foreign direct investments (FDI) in projects and portfolio investments. Foreign investors have pumped in Rs. around $ 6.7 billion in stocks and $20.55 billion in debt instruments in 2017.
It has resulted in strengthening of rupee 6% this year, making it best performer currency among major emerging economies. The rupee had slumped to 68.86 in November 2016 before recovering but now it is 64.09 to the dollar.