As per RBI data, the foreign exchange reserves of India soared by 5.237 billion dollars to reach 412 billion dollars as reported on 29th March. The foreign currency assets, major component of overall reserves swelled by 2.248 billion dollar to reach 384.053 billion dollars. RBI conducted 5 billion dollar-rupee swap a few days back. The central bank will hold another swap auction on 23rd April. The amount of reserves India increased in a week is more than half of the total reserves of Pakistan. The debt ridden country has foreign exchange of 10 billion dollars which is sufficient to cover only two months of imports.
The total foreign exchange reserves of India are almost 50 times greater than that of Pakistan. However, the situation improved little after help from the UAE, Saudi Arabia and China. India has more gold reserves than total foreign exchange reserves of Pakistan. India has gold reserves that are three times more than the total reserves of Pakistan.
The foreign exchange is growing due to an exponential increase in investment made 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 levels. The foreign investors are returning to India due to stable macroeconomic conditions and the prospect of the Modi government coming back to power with a majority. Indian 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.
The trade deficit narrowed to a 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 last year.
The rise in exports, currency, and foreign institutional investors is very encouraging given the fact that 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. 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 because its exports are larger 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 greater foreign reserves than that of India.