Forex Reserves of India

Forex Reserves of India

This article deals with ‘Forex Reserves of India .’ This is part of our series on ‘Economics’ which is important pillar of GS-3 syllabus . For more articles , you can click here .

Current Status of Forex Reserves of India

  • The total foreign currencies (of different countries) an economy possesses at a point of time is its ‘foreign currency reserves or forex reserves’.
  • India’s forex reserves, is about $460 billion (Jan 2020) .
  • It is enough to finance 11 months of imports, compared to 7.8 months in March 2014 (just before the Narendra Modi government came to power and 2.5 months in March 1991 (which forced the country to seek International Monetary Fund assistance). 
  • Ranking of Foreign Reserves with RBI
    1. Foreign Currency and Foreign Currency Assets
    2. Gold
    3. IMF’s SDR
    4. SDR’s Reverse Tranche Position
  • World Ranking of Forex Reserves ( India 8th  and China topped with 3.2 Trillion Forex)
Rank Country Forex
1 China $ 3.2 trillion
2 Japan $1.2 trillion
3 Switzerland $812 billion
  —— ———–
8 India $ 460 billion

Currency Swap Agreements of India

  • Central Banks of different countries sign Currency Swap Agreements with each other to help each other in time of crisis.
  • India-Japan has signed such agreement for Swap in time of Crisis to the tune of $ 75 Billion.
  • Such agreements have been signed by India with various other countries.

Side Topic : How China reached to top position  in foreign exchange Reserve ?

  • Term used by Economic Survey for this phenomenon is ‘China’s Mercantile Policy‘ . Under this policy, China refrains from imports from other countries but at the same time, exports are encouraged.
  • China restrains from Imports in following ways
IT SOE (State Owned Enterprises)  opaquely controls the domestic market
Pharma Inordinate delay in clearance
Food SPS agreements used to ban
Manufacturing Domestic products are too cheap
  • And at the same time, Exports are promoted  by
    • Keeping Yuan Undervalued
    • SOE get cheap loans
    • Subsidies are provided on large scale
    • tech-piracy is neglected
    • Coal , iron, rare earth metals are also exported

Manipulators of Currency

  • US Treasury Department makes list of countries which manipulate their currency .
  • Conditions to include any country in this list : 3 conditions .
    • Trade surplus of over $20 billion with the US .
    • Current account surplus of 3% of the GDP with rest of the world.
    • Persistent foreign exchange purchases of 2% plus of the GDP over 12 months. 
  • In 2018,  India was included in this list. But , India was removed in 2019.
  • Countries which are included in this list includes countries
    1. China
    2. Germany
    3. Japan
    4. South Korea
    5. Switzerland.

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