Foreign exchange or forex revenue plays an important role in maintaining good economic balance of any country, and this year, it was a gala show for India as Indian forex reserves reached $400 billion mark!
India’s foreign exchange reserves crossed the $400 billion mark for the first time ever, strengthening hopes that the country will be able to withstand an expected reduction in stimulus by US central bank later in the year. The country’s forex reserves surged by $2.604 billion to reach an all-time high of $400.726 billion in the week ended September 8, 2017, Reserve Bank of India said in a release on Friday. The surge in India’s forex reserves is likely to help rupee withstand any volatility that may be seen on exodus of foreign funds from India’s debt and equity markets, analysts say. Foreign institutional investors have pumped in more than Rs. 1 lakh crore in to Indian debt and equity market in last 12 months.
According to the RBI data, the reserves – which comprise foreign currency assets (FCAs), gold and special drawing rights with the International Monetary Fund – stood at $400.7 as on September 8. The highest contribution to the reserves has been from foreign portfolio investors. During the April-September quarter, foreign direct investment surged by $7.2 billion in the reporting period from $3.9 billion in the same period last year. Foreign institutional investment flows increased by $11.9 billion in the first quarter from $1.2 billion in the same period last year.
The central bank’s buildup of reserves comes ahead of the US Federal Reserve exiting its stimulus — a move which is expected to result in funds moving back into US dollar assets. Accretion to reserves are expected to slow down with a widening of the current account deficit (CAD) and rising crude oil prices. Foreign institutional investors have pulled out $810 million from the equity market in September on the back of $1.7 billion in August.