The country’s foreign exchange reserves crossed the $500 billion mark for the first time ever. Supported by low crude oil prices, decline in imports and healthy FDI and FPI inflows, the reserves expanded by $8.2 billion in the week ended June 5, to hit the new high of $501.7 billion.
Even as Prime Minister Narendra Modi announced the lockdown beginning March 25, which brought economic activity to a standstill, forex reserves have surged by $31.8 billion since week ended March 20, when the reserves stood at $469.9 billion.
In the nine-month period between September 20, 2019 and June 5, 2020, foreign exchange reserves have grown $73 billion. On September 20, Finance Minister Nirmala Sitharaman had announced cut in corporate tax rates.
The reserves have been supported by rise in FDI inflow, decline in import outgo on account of sharp decline in crude prices and impact of pandemic on trade. Over the last one month, FPI inflows too have risen supported the cause.
According to the data released by RBI, while the FDI inflow stood at 4 billion in March, it amounted to $2.1 billion in April. While foreign portfolio investments came under pressure in March and April following the threat of Covid pandemic in global growth, the outflow narrowed in May and in June (till date) the FPIs have invested a net of Rs 19,955 crore (around $2.65 billion).
Data released by the Reserve Bank of India shows that in the week ended June 5, foreign currency assets, a major component of the overall reserves, increased by $4.8 billion to $463.6 billion. On the other hand, the value of gold reserves declined by $329 million to $32.35 billion.
The rise in forex reserves not only provides cushion to the economy in terms of covering the import expenditure, it has also resulted into stability in rupee against the dollar.
Experts say that in times of dwindling economic activity and growth, the rising forex reserves provide a lot of strength as they now cover one year of import expenditure. In his monetary policy statement on May 22, RBI Governor Shaktikanta Das said, “India’s foreign exchange reserves have increased by $ 9.2 billion in 2020-21 so far (up to May 15) to $ 487.0 billion — equivalent to 12 months of imports.”
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