【New Delhi/mumbai】India's forex reserves crossed $500 billion for the first time ever in the week ended June 5, 2020. While it jumped by $8.2 billion in the week ended June 5, 2020, it is important to note that since the announcement of lockdown in March, it has surged by $31.8 billion.
The major reason for the rise in forex reserves is the rise in investment in foreign portfolio investors in Indian stocks and foreign direct investments (FDIs). According to the data released by RBI, while the FDI inflow stood at $4 billion in March, it amounted to $2.1 billion in April. After pulling out Rs 60,000 crore each from debt and equity segments in March, Foreign Portfolio Investments (FPIs), who expect a turnaround in the economy later this financial year, have now returned to the Indian markets and bought stocks worth over $2.75 billion in the first week of June.
On the other hand, the fall in crude oil prices has brought down the oil import bill, saving precious foreign exchange. Similarly, overseas remittances and foreign travels have fallen steeply – down 61 per cent in April from $12.87 billion. Incidentally, the sharp jump in reserves seen over the last nine-months started with the finance minister, Nirmala Sitharaman's announcement to cut corporate tax rates on September 20. Since then the forex reserves have grown by $73 billion.
As much as 64 per cent of the foreign currency reserves are held in securities like Treasury bills of foreign countries, mainly the US, 28 per cent is deposited in foreign central banks and 7.4 per cent is also deposited in commercial banks abroad, according to the RBI data.
One issue is the high ratio of volatile flows (portfolio flows and short-term debt) to reserves which is around 80 per cent. This money can exit at a fast pace.
Explained: Why India’s forex reserves are rising, what this means for the economy
India’s forex reserves cross half-a-trillion-dollar mark for the first time
India's foreign exchange reserves cross $500 bn for the first time
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