Categories: Economy

India’s forex kitty rises to $611 bn despite Covid blues

<p>
Amid rising concerns in the wake of the Covid 19 induced uncertainty in the global markets, India's swelling foreign exchange reserves — currently at over $ 611 billion – serves as a sentiment booster. The quantum can easily take care of a large part of the external debt.</p>
<p>
However, while high forex reserves act as a cushion and provide the necessary resilience, it also increases overall cost. The Reserve Bank of India (RBI), therefore needs to focus on efficiently managing the pile of reserves to ensure a healthy return.</p>
<p>
In terms of forex reserves, India currently ranks fourth in the world. China has the highest reserves followed by Japan and Switzerland.</p>
<p>
<strong>Also read: <a href="https://www.indianarrative.com/economy-news/india-must-ride-with-world-growth-to-achieve-trillion-economy-goal-102221.html">India must ride with 5.6% world growth to achieve $5 trillion economy goal</a></strong></p>
<p>
A high forex reserves is an indicator of a country’s ability to meet external debt obligations besides being a sentiment booster. This is also important for credit rating agencies.</p>
<p>
“While the magnitude of reserves is important, it is also equally important to manage it well so that it can give a better return,” DK Srivastava, chief policy adviser, EY India, told India Narrative.</p>
<p>
“We must remember that there is also a cost attached to high reserves and we need to be watchful of that, it is important to have healthy forex reserves but unnecessary rise can lead to other problems and will also push the cost of maintaining such reserves,” an analyst added.</p>
<p>
Srivastava said that RBI must monitor closely to ensure that returns on the pile of forex is healthy.</p>
<p>
Earlier, brokerage firm Anand Rathi noted that though the high forex kitty provides resilience to India’s external sector position, a low (often less than 1 per cent) yield, can push up the cost of holding the reserves.</p>
<p>
<strong>Also read: <a href="https://www.indianarrative.com/economy-news/india-s-exports-touch-billion-in-april-june-quarter-the-highest-ever-goyal-99685.html">India's exports touch $95 billion in April-June quarter–the highest ever: Goyal</a></strong></p>
<p>
The reserves have swollen steadily in the last one year due to the foreign direct investments, remittances and portfolio investments.</p>
<p>
According to a report published by <a href="https://economictimes.indiatimes.com/markets/forex/rbi-may-use-money-managers-to-boost-forex-reserves-yield/articleshow/83386209.cms">the Economic Times</a>, the RBI “is weighing the option of engaging specialist money managers to help improve yields on the reserves fund as rates hit record lows globally.”</p>
<p>
The forex kitty is determined by the level of foreign currency assets, and their appreciation or even depreciation. India’s forex kitty also has gold reserves and special drawing rights (SDRs).</p>

Mahua Venkatesh

Mahua Venkatesh specialises in covering economic trends related to India and the world along with developments in South Asia.

Recent Posts

Nari Shakti: Astha Poonia becomes Indian Navy’s first woman fighter pilot

Sub Lieutenant Astha Poonia officially became the first woman to be streamed into the fighter…

8 minutes ago

Israel awaits Hamas response on US-backed ceasefire, Trump offers guarantee for permanent peace

As Israel awaits Hamas's response on Friday to the latest proposal for a hostage release…

18 minutes ago

“One border, three adversaries; was like a live lab for China to test weapons”: Deputy COAS on Op Sindoor

Deputy Chief of Army Staff (Capability Development and Sustenance), Lieutenant General Rahul R Singh, on…

2 hours ago

Restrictive laws and political pressures continue to limit media freedom and trust in Bangladesh, says UNDP and UNESCO report

A report on Bangladesh's media landscape has revealed that the restrictive laws and political press…

4 hours ago

India actively working on creating comprehensive database of Girmitiya community: PM Modi

Prime Minister Narendra Modi has said that India is actively working on creating a comprehensive…

4 hours ago

Indian Chamber of Commerce hosts 14th India Minerals and Metals Forum, focuses on green steel and circular economy

The Indian Chamber of Commerce (ICC) on Thursday hosted the 14th India Minerals and Metals…

23 hours ago