After China, Japan, Switzerland and Russia, India has gained the position of fifth largest foreign exchange reserves holder in the world. The country has accumulated $608.99 billion as forex reserves on June 25. Pankaj Chaudhary, Minister of State for Finance, informed this adding that the position of the country’s foreign exchange reserves is comfortable in terms of 18 months’ import cover that provides cushion against unforeseen external shocks.
He said RBI scales up operations in repo markets and forex swap as regular steps to diversify forex reserves. It also takes for acquisition of gold, besides exploring new products and markets while adhering to liquidity and safety standards.
He added that increasing foreign exchange reserves, accompanied by current account deficit reflects surplus on balance of payments. India’s balance of payments in 2020-21 achieved surplus in both capital account and current account. Moreover, the capital account also contributed to the increase in forex reserves in the year.
The overall stability of the external sector also depends on various other components of balance of payments which include remittances (transfers), the size of net capital flow coupled with the income in the current account. The minister said that the country is comfortable vis-à-vis the vulnerability of the most of these external factors.