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India’s FOREX reserves 2021

  • Vaid's ICS, Lucknow
  • 20, Jul 2021
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Why in News?

Recently, the Minister of State for Finance has stated that India’s FOREX reserves stood at $608.99 billion as on June 25, 2021.

Key Highlights:

  • India has emerged as thefifth largest foreign exchange reserves holder in the world after China, Japan, Switzerland and Russia.
  • India’s foreign exchange reserves position is comfortable in terms of import cover of more than 18 months.
  • India’s foreign exchange reserves provides cushion against unforeseen external shocks.

The variation in India’s FOREX reserves is primarily the outcome of:

  • RBI’s intervention in the foreign exchange marketto smoothen exchange rate volatility;
  • Valuation changes due to movement of US dollaragainst other international currencies in the reserve basket;
  • Movement in gold prices; and
  • Interest earnings from deployment of foreign currency assetsand inflow of aid receipts
  • In 2020-21, India’s balance of payments recordedsurplus in both current account and capital account which contributed to the increase in foreign exchange reserves during the year.
  • The current account deficit, accompanied byincreasing foreign exchange reserves, reflects a surplus on the balance of paymentse., the magnitude of the net capital inflows exceeds the volume of the current account deficit.
  • The overall stability of the external sector depends on other components of balance of paymentsincluding remittances (transfers), income in the current account, the size of net capital flows and external debt.

What is Foreign Exchange Reserve?

  • They are assets such as foreign currencies, gold reserves, treasury bills, etc. retained by a central bank that checks the balance payments and influences the foreign exchange rate of its currency.
  • The International Monetary Fund defines reserves as external assetsthat are readily available to and controlled by monetary authorities for:
    • Direct financingof external payments imbalances; and
    • Indirectly regulating the magnitudesof such imbalances through intervention in exchange markets to affect the currency exchange rate, and/or for other purposes
  • The Reserve Bank of India (RBI) acts as thecustodian of foreign reserves, and manage reserves.
  • It consists of cash, gold, bonds, bank deposits and financial assetsdenominated in foreign currencies.

Facts for Prelims:

Near-Earth Asteroid (NEA) Scout:

  • It is a small spacecraft, about the size of a big shoebox.
  • Its main mission is to fly by and collect data from a near-Earth asteroid.
  • It will also be America’s first interplanetary missionusing a special solar sail propulsion.
  • It will usestainless steel alloy booms and deploy an aluminum-coated sail measuring 925 square feet.