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India’s foreign exchange reserves crossed the half trillion-dollar milestone for the first time, thanks to the single largest weekly accretion of $8.223 billion in the week ended June 5, 2020.
As on this date, the reserves stood at $501.70 billion. With this, India joins a select league of countries such as China (with $3 trillion reserves as at April-end), Japan ($1.37 trillion as at May-end), Switzerland ($825 billion as at April-end) and Russia ($566 billion as at May-end) that have more than $500 billion in reserves.
India’s reserves consist of Foreign Currency Assets ($463.63 billion), Gold ($32.35 billion), Special Drawing Rights ($1.44 billion) and Reserve Position in the IMF ($4.29 billion).
In a tweet referring to the reserves hitting an all-time high, Sanjeev Sanyal, Principal Economic Advisor to the Government of India, said: “India's Foreign Exchange Reserves hit USD501.7 billion. As I have been saying in recent weeks, demand suppression (such as lockdown) would push the INR (Indian Rupee) to appreciate after an initial capital outflow.
“Now, as we open the economy to remove demand suppression, and push up credit growth, we will both revive imports and foreign capital inflows. The point is that demand identities imply macro-dynamics that is quite different from what naive forecasters suggest.”
Madan Sabnavis, Chief Economist, CARE Ratings, said India’s reserves will keep rising. He observed that the current account deficit has been coming down and foreign direct investment (FDI) and external commercial borrowings (ECBs) are going up substantially.
“Many companies, especially those in the non-banking finance space, which are unable to borrow domestically, are tapping the ECB market. It has become easier for them. So, everybody is going there,” he said.
Since March-end 2020, India’s forex reserves have increased by $23.9 billion. At the current level, the reserves’ cover of imports could be a little more than a year. In his statement on May 22, RBI Governor Shaktikanta Das had mentioned that at $487 billion (as on May 15), the cover provided by the reserves was equivalent to a year’s imports.
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