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India’s foreign exchange reserves, which currently stand at more than USD 500 billion, are the fifth largest in the world after China, Japan, Switzerland and Russia, as per the International Monetary Fund. They are considered to be enough to cover 13 months of imports.

This is extremely significant for the nation, especially in the wake of Coronavirus pandemic, which had a major impact on the Indian economy along with the world. India is still in the process of reopening its economy after more than two months of strict lockdown. 

On a weekly basis, FCAs, the largest component of the forex reserves, edged up by $565 million to $467.603 billion.

Expressed in dollar terms, the foreign currency assets include the effect of appreciation or depreciation of non-US units like the euro, pound, and yen held in the foreign exchange reserves.

Similarly, the value of the country's gold reserves increased by $7.07 million to $33.523 billion. However, the SDR value slipped by $3 million to $1.444 billion.

Nevertheless, the country's reserve position with the IMF inched up by $3 million to $4.267 billion.

How are India’s foreign exchange reserves so high?

India’s foreign exchange reserves have received a huge boost due to a rare current-account surplus in the first quarter, return of inflows into the local stock market and foreign direct investment, including major investments in Reliance Jio platforms during these past two months. Reliance Industries is India’s largest company by revenue and investments in its Jio Platforms helped the Reserve Bank of India to accumulate a total of USD 25 billion in foreign exchange in the quarter through June.

Why is this important?

Having high foreign exchange reserves will serve as a cushion against market volatility. It will provide added comfort to the foreign investors and credit rating companies that the government can meet its debt obligations despite a dismal economic outlook.