Amid Covid-19 crisis, India’s foreign exchange reserves soared; thanks to FPIs, foreign currency assets

The significant investment worth Rs 5,480 crore by foreign portfolio investors for the week ended May 29 also led to the rise in India’s forex reserves amid the Covid crisis.

During 2020-21, the country's foreign exchange reserves had risen by almost USD 62 billion.
foreign exchange

India’s foreign exchange reserves – foreign currencies held by the central bank of a country for backing liabilities — hit an all-time high of $493.48 billion for the week ended May 29, according to the RBI data. The foreign currency assets, which is a major component of the overall reserves and include the appreciation or depreciation of the currencies such as Yen, Euro, Pound etc. other than the US currency, went up from $3.50 billion to $455.21 billion. The significant investment worth Rs 5,480 crore by foreign portfolio investors for the week ended May 29 also led to the rise in India’s forex reserves amid the Covid crisis.

The high reserves are not just as much as worth 12-month of imports – providing significant strength amid current economic scenario and growth — but also make rupee stronger against the dollar. The rupee rose 34 paisa against the US dollar in the week ended May 29. RBI governor Shaktikanta Das in the monetary policy statement last month had said that forex has surged by $9.2 billion in FY21 so far (till May 15) to $487.0 billion, equivalent to 12 months of imports.

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The forex reserves improved after declining by a whopping $11.98 billion to $469.909 billion in the week ended March 20 amid the central bank continued to supply dollars into the market to arrest the rupee fall.  The Indian currency fell to a record-low at Rs 76.15 against the US dollar on March 23 on the back foreign investors’ withdrawal from domestic equity and debt market due to Covid-led uncertainties.

Meanwhile, a significant decline in the international crude oil prices has helped the country save Rs 5,000 crore in foreign exchange even as it strengthened the energy security by filling the strategic reserves to full capacity with cheap crude oil, Petroleum and Natural gas ministry had tweeted recently. Crude oil occupies the biggest share in India’s overall imports. Hence, cheaper oil has lowered the country’s import bill and the current account deficit.

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