THE BIGGEST FALL

India's Foreign Exchange Reserves Have Plunged By Over $9.64 Billion

    India's foreign exchange reserves have plunged by over $9.64 billion during the week that ended on March 11. Accordingly, the Reserve Bank of India data showed that India’s forex reserve fell to $622.275 billion from $631.920 billion reported the previous week. This is the biggest fall in nearly two years after the foreign exchange, or forex, reserves plunged by $11.98 billion during the week ended March 20, 2020, when the Covid pandemic hit India and FPIs pulled out funds. The country’s forex reserves had touched an all-time high of $642.453 billion in the week ended September 3, 2021.

      The Indian rupee plunged to a record low of 77.02 against a US dollar on March 7. According to the market analysts, the RBI intervened in the currency markets by selling dollars. The central bank is estimated to have sold $1 billion a day during the week to prevent further weakness in the Indian currency. The decline in the forex reserves during the week ended March 11 this year was the sharpest in nearly two years. 

      The effect of appreciation or depreciation of non-dollar currencies held in foreign exchange reserves, such as the Euro, the British Pound Sterling, and the Japanese Yen, is included in the foreign currency assets when expressed in US dollar terms. This steep drop in the country’s foreign currency assets coincided with the week in which the country’s foreign currency assets fell sharply.

      The country's forex reserves comprise foreign currency assets (FCAs), gold reserves, SDRs and the country's reserve position with the IMF. On a weekly basis, FCAs, the largest component of the forex reserves, edged lower by $11.108 billion to $554.359 billion. However, the value of the country's gold reserves increased by $1.522 billion to $43.842 billion. The SDR value fell by $53 million to $18.928 billion. In addition, the country's reserve position with the IMF slipped by $7 million to $5.146 billion.

         The Indian Putting severe pressure on the rupee, foreign investors have withdrawn Rs.41,617 crore in March so far. This outflow has come after withdrawals of Rs. 45,720 crore in February & Rs. 41,346 crore in January. With this, FPIs have pulled out Rs. 2,25,649 CRORE ( excluding FPI investments in IPOs) since October 1, 2021, mainly anticipating an interest rate hike by the US Federal Reserve. Brent crude prices soared to a near 14-year high of $140 as the Ukraine war intensified. As India imports nearly 80 % of its domestic oil requirements, high crude prices would have led to a steep rise in dollar requirement.

         In current geopolitics, it is crucial for India to maintain rather increase its forex reserves. Despite economic sanctions imposed by the West, How Russia’s forex reserves is helping her maintaining her unflinching balance is the latest example. India should learn from others and emerge herself as a developed and robust economy in a globalized economy.