October 18, 2020 12:43:39 am
India’s foreign exchange reserves jumped by $5.86 billion in the week ended October 9 to hit a fresh high of $551.5 billion. As Covid-19 pandemic led to a sharp decline in imports of crude oil and gold and Indian companies attracted huge foreign direct investments, the forex reserves swelled by $75 billion since lockdown announcement in last week of March.
RBI data released on Friday shows that in the week ended October 9, the foreign currency assets expanded by $5.73 billion to $508.7 billion and the gold reserves were up by $113 million to $36.6 billion.
RBI data shows that FDI has stood strong despite the Covid-19 and in the five month period between April and August 2020, the foreign direct investment amounted to $24.56 billion.
Even the FPI investment has been strong this financial year. Between April and October 16, the FPIs have invested a net of $8.5 billion into Indian capital market.
Alongside this jump in FDI and FPI inflows, the reserves have been supported dip in import bill on account of ruling low crude oil prices, decline in gold and other imports on account of the Covid-19 pandemic.
While rising foreign exchange reserve provides cushion to the economy in terms of covering the import expenditure, it also provides stability to the domestic currency against the dollar. While the rupee hit a low of 76.97 against the dollar on April 21, 2020, it has recovered over the last six months and closed at 73.3 on Friday. Between April 1 and October 9, the reserves have risen by $75 billion.
Economists say that rise in foreign exchange reserves in combination with benign oil prices and tepid imports, leading to a current account surplus, has helped the Indian rupee to remain broadly stable since mid-March 2020, despite deterioration in some of the other macro parameters such as retail inflation, fiscal deficits and negative GDP growth.
Experts say that in times of dwindling economic activity and growth, the rising forex reserves provide a lot of strength as they now cover one-year of import expenditure.
India’s foreign exchange reserves started rising significantly from September 2019. While the foreign exchange reserves stood at 428 billion in the week ended September 20, 2019, it has risen by $122 billion over the last 13-months to hit a high of $551.5 billion in the week ended October 9.
It is important to note that gold, which was a big import component for India, witnessed a sharp decline in the quarter ended June 2020 following the skyrocketing prices and the lockdown induced by the pandemic. As per World Gold Council, gold imports fell by 95 per cent to 11.6 tonnes in the quarter, compared to 247.4 tonnes in the year-ago period due to logistical issues and poor demand.
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