India’s forex (Foreign Exchange) reserves touched a record high of 402 billion dollars as of March 8. The foreign exchange reserves of the country increased by 285 million dollars from the previous week. Foreign currency assets (FCA) which are maintained in foreign currencies like dollar, euro and pound sterling rise by 67.1.2 million dollars from the previous weak to 374.227 billion dollars. The foreign exchange is growing due to an exponential increase in the investment by Foreign Institutional Investors (FIIs). The gap between exports and imports narrowed in the last few months, this is also one of the major reasons behind the rise in forex level.
As per the stock exchange data, net foreign portfolio investment in the country reached 15 month high of 2.42 billion dollars in February. Nifty, the benchmark index of National Stock Exchange, rose by 11 percent since October 26. The foreign investors are returning to India due to stable macroeconomic conditions and the prospect of Modi government coming back to power with a majority. The India Air Force’s strike deep inside the territory of Pakistan for the first time country’s history has raised the investor’s sentiment on Modi government getting reelected in upcoming general elections.
Given the stable macroeconomic conditions, the demand of Rupee is rising in the international market. The rupee has gained 0.15 percent so far in this year. Since the month of March, foreign investors have bought Indian equities worth more than 1 billion dollars and a good amount of debt too. The trade deficit narrowed to 17 month low in February with exports rising 2.44 percent to 26.67 billion dollars compared to the same month in last year. Imports dipped by 5.41 percent to 36.26 billion dollars given the low gold imports and softening of crude prices in international markets. Gold imports fell by 10.81 percent to 2.58 billion dollars in February compared to 2.90 billion dollars in the same month in the previous year.
The rise in exports, currency, and foreign institutional investors is very encouraging given the emerging markets across Asia are slowing down due to China’s woes. The imports and exports of China fell by double digits due to economic slowdown and trade war.
India had forex reserves of $600 million in 1991 which were barely enough to cover three weeks of imports. We have come a long way from there and forex reserves have gone up by more 600 times since then. India’s foreign exchange reserves are also many times more than the neighboring country of Pakistan. The terrorist nation has a foreign exchange reserve of only 10-12 billion dollars to cover only a few months of imports. India’s foreign exchange is almost 40 times more than that of Pakistan. However, the foreign exchange of China is also many times more than that of India given its high export figures.
China posts a very high Current Account Surplus due because its exports are more than imports. The foreign exchange of China is almost 3 trillion dollars which is 7 times more than that of India. Export-led economies like China, Japan, Switzerland, Saudi Arabia, Russia, Taiwan, Hong Kong, and South Korea have more foreign reserves than India.
