SRINAGAR: India’s foreign exchange reserves have been on a declining trend for six consecutive weeks, with a notable drop from US$ 684.80 billion (around Rs 56,47,000 crore) on October 25, 2024, to US$ 656.58 billion (roughly Rs 54,11,400 crore) by November 22, 2024. However, the reserves experienced a slight uptick to US$ 658.09 billion (approximately Rs 54,22,300 crore) by November 29, 2024, offering a positive sign for the economy.
The primary reason for the decline in the reserves has been fluctuations in the Foreign Currency Assets (FCA), a key component of the forex reserves. These fluctuations are largely attributed to the purchase and sale of foreign exchange by the Reserve Bank of India (RBI), income generated from deploying forex reserves, and external aid receipts from the central government. Additionally, the balance of payments plays a crucial role, with capital inflows being offset by the current account deficit, which impacts the net foreign exchange reserves.
Despite the recent dip in reserves, the government has reassured that there are no imminent economic risks. The forex reserves currently cover more than 11 months of imports and stand at over 99 per cent of the external debt outstanding as of June 2024. This means that India’s reserves remain at a comfortable level, ensuring stability against external shocks.
Addressing concerns about the potential risks posed by the declining reserves, the government remains confident in its ability to maintain currency stability. By closely monitoring the current account balance and capital inflows, the RBI is able to manage volatility effectively. Additionally, the government is working to ensure that the reduction in reserves does not lead to an increase in import costs or inflation.
In terms of measures to strengthen India’s forex reserves, the government has been promoting economic policies that encourage foreign investments and capital inflows, thus aiming to stabilize the reserves. With the current reserves providing a cushion against external pressures, there is no immediate threat to India’s financial stability, and the government is focused on rebuilding reserves to optimal levels in the coming months.
