Statsguru: Six charts show rising India's foreign exchange reserves

India's foreign exchange reserves have doubled in the past decade. The cushion means better external debt metrics and a more stable currency, particularly compared to the volatility seen during the taper tantrum episode of 2013, according to a Business Standard analysis.

Due to increased capital flows, India accumulated over $100 billion worth of reserves during the pandemic. It lost roughly the same amount in the first nine months of 2022 due to policy tightening by the US Federal Reserve, which led to capital outflows. However, India quickly managed to regain the lost level. Forex reserves touched a record  $642.63 billion as on March 22, according to recently released Reserve Bank of India data. It was less than half this amount in April 2013.

The taper tantrum episode of 2013 had sent the rupee tumbling, which significantly increased macroeconomic risks. India’s peers in the so-called “fragile five” economies, which were more affected, haven't added as much reserves since. Forex reserves are up 31 per cent in Indonesia and 24 per cent in South Africa, compared to a 117 per cent increase in India. Brazil and Turkey have lower reserves than in 2013.

The composition of forex reserves has changed with gold occupying a more important place. This is in line with the global trend. The central banks of other countries including China, Poland and 

Turkey have also been buying gold. It now accounts for over $50 billion in India’s reserves.

India runs a current account deficit, which declined to 1.2 per cent of gross domestic product (GDP) in December 2023, compared to 2 per cent the year before. It was 3.6 per cent of GDP in March 2013.



Robust services exports have played a major role in improving India’s current account balance.

India’s reserves are higher relative to external debt than in 2013. Short-term debt metrics also show an improvement.



So does import cover. Forex reserves can cover around 11 months of imports (as of March), compared to around 7 months in April 2013.



Higher reserves have also reduced currency volatility significantly.