India’s forex reserve fifth largest in the world

With its foreign exchange reserves hitting $608.99 billion as on June 25, India has emerged as the fifth largest foreign exchange reserve holder in the world after China, Japan, Switzerland and Russia, parliament was told yesterday.

This was stated by the Minister of State for Finance Pankaj Chaudhary in a written reply to a question in the Lok Sabha.

The minister said India's foreign exchange reserve was at a comfortable position in terms of import cover of more than 18 months and providing a cushion against unforeseen external shocks.

The government and the Reserve Bank of India (RBI) are closely monitoring the emerging external position calibrating policies or regulations to support robust macroeconomic growth, he added.

Chaudhary said the RBI takes regular steps for diversification of forex reserves by scaling up operations in forex swap and repo markets, acquisition of gold and exploring new markets and products while adhering to safety and liquidity standards.

The minister said a current account deficit, accompanied by increasing foreign exchange reserves reflects a surplus on the balance of payments.

In 2020-21, India's balance of payments recorded a surplus in both current account and capital account, which contributed to the increase in foreign exchange reserves during the year.

Other than exports and imports of goods and services, the overall stability of the external sector depends on other components of balance of payments, including remittances, income in the current account, the size of net capital flows and external debts.

India is comfortable in most of these external sector vulnerability indicators, the minister said.