ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Surging Reserves

Only greater stability and absorptive capacity can ensure productive use of funds.

Despite the slowdown in the economy in recent years and the body blow from the pandemic, the country’s foreign exchange reserves (FER) have continued to surge for the second consecutive year. In 2019–20, India’s FER went up by $65 billion taking the total stock of reserves to $478 billion. And the current fiscal year has seen reserves bloat by another $97 billion, to cross the half a trillion figure, and touch $575 billion by end November. Most probably, annual FER inflows in 2020–21 will exceed the record of $111 billion set during the global boom. The reserves offer effective protection from both domestic and external shocks and also help achieve monetary and exchange rate policy goals. Though it is difficult to assess the adequacy of FER, which is both country- and policy-specific, India’s FER can now pay for more than one year of imports or repay around 90% of the external debts.

Amassing more than half a trillion dollars of FER was no easy feat. It was only in the late 1960s that FER first touched the one-billion-dollar mark. And it took almost another quarter century for the reserves to reach $10 billion. Then partly aided by the global boom, reserves accelerated and hit $100 billion in just a decade and then in another decade and a half it shot up above half a trillion dollars. So now, India’s FER is the fifth largest in the world, with China topping at $3.2 trillion, followed by Japan with $1.3 trillion, Switzerland with around $952 billion and Russia with $583 billion.

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Updated On : 12th Dec, 2020
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