The RBI has published data of the country's Foreign Exchange Reserve (forex) stating India has increased its forex by $8.895 billion to reach a record high of $642.453 billion, in the week ended September 3, 2021. In the reporting week, a rise in foreign currency assets (FCAs), a major component of the overall reserves, propelled the gross reserve, as it increased by $8.213 billion to $579.813 billion. Gold reserves also towered by $642 million to $38.083 billion, along with a rise in the International Monetary Fund's (IMF) Special Drawing Rights (SDR) by $29 million to $19.437 billion. Additionally, India's reserve position with the IMF increased by $11 million to $5.121 billion.
Hike in the previous week
Earlier, India's forex has augmented by $16.663 billion to $633.558 billion, the week ended August 27, mostly because of a hike in SDR holdings. During that week, the International Monetary Fund (IMF) allocated SDRs of $12.57 billion to India. India's foreign currency assets are expressed in dollar terms, which also include the effect of appreciation or depreciation of non-US units like the euro, pound, and yen held in the foreign exchange reserves.
What is forex? What is the significance?
Foreign exchange reserves or commonly known as forex are assets that are held by the central bank of a country in foreign currencies, to support the exchange rate, international transactions, trade, or export and fix monetary policy. RBI holds gold, dollars, and the IMF's quota for SDRs under its forex in India. Significant forex will help India to cushion its economy from any disturbance in foreign capital flows, that can occur during a crisis. Most of India's reserves are generally held in US dollars.
Initiatives like AatmaNirbhar Bharat, Duty Exemption Scheme, Remission of Duty or Taxes on Export Product (RoDTEP), Nirvik (Niryat Rin Vikas Yojana) scheme, have helped India to grow its forex in terms of better export and manufacturing while pulling imports down. Additionally, improved Foreign Direct Investment (FDI) also helps to increase the overall forex.
China, Japan, Switzerland, India, and Russia are some of the countries with the highest foreign currencies or reserves, while India is also gaining a strong position considering its gold reserve.