Indian Forex Reserves Fall

Indian Forex Reserves Fall by Andrew Blumer last updated on May 31, 2022

Indian Forex reserves dropped significantly in early December of 2021 and the dip was $1.783 billion. It was the second weekly decline due to an increase in the number of sellers who were foreign investors. The net foreign exchange reserves were $636.905 billion. Moreover, the drop of two weeks preceding December 3 was $4.5 billion.

The fall was simultaneously due to the depreciation of the native currency against most major currencies like the pound sterling, Japanese yen and euro.

The Indian rupee dropped against the USD during the period and traded at around $75. The fall was between 0.8 percent and 1.3 percent in two weeks ending December 3. Data from NSDL revealed an increased number of foreign investors sold the equities which were worth Rs 17484 crore in the month. The net sale in November was Rs 33799 crore.

However, the foreign exchange reserves have lately climbed up by $394 million and reached $631.92 billion. The value of the rupee against USD on March 7, 2022, was $76.96.

India is now ranked 5th in the world with respect to Forex reserves. The four countries ahead are China (global leader in Forex reserves), Japan, Switzerland and thereafter Russia, which is currently in a war against Ukraine. India was in 4th place in 2021.

The international asset reserves of India cover about 75 percent of the total external liabilities like equity and debt. Moreover, it was about 16 percent of the country's GDP in March 2013 and now it covers 20.5 percent of the GDP.

Even though the Forex reserves are at a good level now in India, the early 1990s were completely different. It was the period of the Forex crisis. The deficit was about 9.4 percent and the foreign debt in March 1991 was about $72 billion. The reserves dipped to $5.8 billion and a desperate call was made to increase funds from overseas banks and multilateral agencies.

What is Forex Reserve

It is simultaneously called reserve assets consisting of bank deposits, treasury bills, government securities and banknotes of overseas countries. It includes the reserve of SDRs, IMF and gold too.

The top ten counties having the most Forex reserves in the world are China, Japan, Switzerland, Russia, India, Taiwan, Hong Kong, South Korea, Saudi Arabia and Singapore. Germany is currently placed in the 12th position while the United States is in the 13th. The United Kingdom is ranked 16th.

The five countries having the least Forex reserves include Kiribati, Somalia, Sao Tome and Principe, Burkina Faso and Equatorial Guinea.