Quixplained: How does India acquire forex?

How does India acquire foreign exchange? What is the Current Account Deficit? Instead of understanding each of these terms separately, it would be better to understand all of them at once, and more importantly, understand the way they are related to each other.

India's forex between April and December 2021 grew by US$ 63.5 billion. (Illustration: Suvajit Dey)

2 min readNew DelhiApr 7, 2022 10:19 AM IST First published on: Apr 6, 2022 at 11:20 AM IST

Between April and December 2021, India’s foreign exchange reserves grew by US$ 63.5 billion. At the same period, the country recorded a Current Account Deficit of 1.2 per cent of GDP, as against a surplus of 1.7 per cent in April-December 2020.’

How does India acquire foreign exchange? What is the Current Account Deficit? Instead of understanding each of these terms separately, it would be better to understand all of them at once, and more importantly, understand the way they are related to each other. Take a look:

Between April and December 2021, India’s foreign exchange grew by UD.5 billion.

Understanding forex requires knowing how India’s Balance of Payments (BoP) works.

What is Current Account Deficit?

What is Capital Account?

How India gets its forex

To read more about how India’s exchange rate relates to its current account deficit, forex reserves, and balance of payment, read ExplainSpeaking, this week’s newsletter by Udit Misra.