India’s foreign reserves maintain rising streak; crosses $507 billion on back of high foreign investment

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Published: June 19, 2020 6:33 PM

India's foreign reserves rose by $5.9 billion (Rs 58,460 crore) in the week ending June 12.

FPI, foreign investors, foreign portfolio investors, foreign funds, foreign reservesOne of the major reasons behind the rise in foreign reserves amid a major economic slowdown is the high foreign investments.

After India’s foreign reserves crossed the $500 billion mark in the week ending June 5, it further increased to $507.6 billion in the next week. India’s foreign reserves rose by $5.9 billion (Rs 58,460 crore) in the week ending June 12,  said the RBI’s weekly supplement. One of the major reasons behind the rise in foreign reserves amid a major economic slowdown is the high foreign investments that the country is receiving. Foreign portfolio investment (FPI) in the month of June is at a 7-month high of Rs 18,000 crore, with 10 more days remaining in the month, according to NSDL.

Foreign reserves include foreign currency assets, gold reserves, special drawing rights (SDR), and reserve position in the IMF.  While the foreign currency assets rose $5.1 billion in one week to June 12, the gold reserves rose by $821 million in the same duration.  

Also Read: Power output continues to fall in June, even as Modi says electricity usage showing economic revival

India is the fifth-largest foreign exchange reserves holder in the world, which may also support Indian rupee and the current capital outflows may turn into inflows. Principal Economic Advisor Sanjeev Sanyal also said in a tweet that demand suppression (such as lockdown) would push the INR to appreciate after an initial capital outflow. While petrol and diesel prices are continuously rising from the last thirteen days, it was expected that weak rupee may further shoot up the fuel prices. 

Foreign reserves are important for any country because they ensure that the country’s government has backup funds if their national currency rapidly devalues or becomes insolvent. These reserves are also used to back liabilities and influence monetary policy. It is thus mandatory for the central banks to hold a significant amount of foreign reserves with itself. Most of these reserves are held in the US dollar since it is the most traded currency in the world.

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